It is safe to say that the global pandemic took everyone by surprise when we went into lockdown in March, and not least the financial markets and the economy.
Your investment, like most others, will have gone down in value over the past months. For some clients, this may be the first time they have experienced such large downturns, after what has been over the last few years, a fairly long sustained upward curve or as it’s called, a Bull market.
At times like these, when the markets are down, it is easy to panic and feel that you want to sell out of what you’re invested in and move your money to cash or sell altogether.
Markets on average go up over time so you need to be very, very certain you’re right to sell.
In addition, selling creates another problem – when do you reinvest? This relies on you being right twice, selling and then buying back at a later date.
At the moment any potential losses are currently on paper.
By taking action and selling, your loss then becomes a real one. And even then, having the cash doesn’t protect you from inflation.
As advisers we take time to set up your portfolios with specific goals in mind, investing in a wide range of assets, designed to protect you from the worst impacts of a downturn. This still remains the case and by staying invested you simply need to wait for the markets to recover, which in time, they will.
As the old saying goes, ‘it’s not the timing of the investment, but the time that you are in the investment’. And this is never more true than now.
The chart at the bottom of this article (click to enlarge) shows the FTSE all share index over the last 120 years, and how long we have had a Bull market for (one that goes up by more than 20%), and how many of those years were a Bear market (one that goes down by more than 20%), and you will see Bull markets last significantly longer than Bear markets, and there have been many more of them.
So, a few questions to conclude:
Will all my money disappear?
Companies and, in extreme cases, countries can go bust but diversified portfolios* do not.
*across asset class, country, currency, sector, company, fund, fund manager and investment style
How long will it take for my portfolio to recover?
We don’t know exactly. It took 6 years for the FTSE 100 to recover from the tech bubble bursting but less than 2 years to recover after 1987. A diversified portfolio (with rebalancing) is likely to recover more quickly than the FTSE 100.
Shouldn’t I sell now and wait until things are back to normal to reinvest?
Markets have already fallen and most assets are now cheap on a long-term basis. By the time things are ‘back to normal’, markets will have risen to reflect this. So a client selling now and reinvesting then will be locking in a loss and missing out on a gain.
If you wish to discuss your investments or for any other questions about your financial situation, please call us on 01752 837950 or e mail firstname.lastname@example.org