We are living through unprecedented times, that will be remembered by us all for ever. Our focus is on staying healthy and flattening the Covid-19 curve. We are worried about our own health and that of our loved ones, particularly the elderly who are cocooned in their own homes. Some of you have seen your jobs disappear (hopefully temporarily) and others have seen their income reduced.
On top of all of this, stock markets have been extremely jittery and this is causing anxiety for investors and pension plan holders. Do you remember when all we had to worry about was Brexit?? However I can help you manage this investment anxiety. After all, while Covid19 is a unique event, volatile stock markets certainly are not. We’ve seen them before and we’ll see them again. The key is not to panic and make any rash decisions. So, what do you do?
Stick to the plan
Your financial plan was developed to guide you to achieving your goals. Your plan is there to guide you, both when markets are racing ahead and also when they are more volatile. Now is not the time to start second guessing yourself and trying to predict where markets are going. Because you can’t predict where they are going, and nor can I. Tune out the noise, stick to the plan and don’t let emotions such as greed or fear cloud your decision-making. Don’t start trying to time entry and exit from the markets, the key to long-term success is the time spent in the market.
Volatility is a feature of efficient markets
Investing doesn’t happen in a straight line, you expect bumps along the road. Volatility is simply a feature of investment markets which go through periods of both calm and volatility, sometimes in line with the market cycle, at other times reacting to once-off events such as Covid-19. Historically, times when markets are volatile have proven to be the wrong time to make significant investment decisions, as strategies tend to be coloured by short-term factors.
One well tested principle of investing is to stick to the diversified asset allocation approach that was used in constructing your portfolio, as this is more likely to deliver long-term success. There are endless examples of investors chasing that one sure bet – technology companies in the late 1990’s, bank stocks in Ireland and foreign property investments in the 2000’s. And we all know where these ended up. A key principle of successful investing is to stay diversified across asset classes, geographical regions and sectors. This will protect you against unforeseen negative developments in a single area.
Keep on saving
When short-term volatility happens, some investors are slow to commit more money to their investment strategies. It’s important that you keep the faith and keep saving where possible, as otherwise you are effectively trying to time the market. Keep investing, although talk to me about the best way to do this. It may make sense for you to employ a strategy such as “euro cost averaging”. This is where you invest a fixed amount at regular intervals and as a result if markets are moving around, you are buying in to the market at various price points.This softens the impact of significant market fluctuations.
Remember past successes
While of course we are always at pains to point out that past performance is not a guide to future performance, at the same time it’s sometimes worth looking back and seeing where you came from. This hopefully will give you confidence in the future! Look at an investment that you’ve had for a long time – this could be an old pension fund, a children’s education fund or even your family home. Or for example, just look at stock market returns over any 10year+ time frame. With very few exceptions, the results are extremely heartening. This will give you a sense of how time is your friend and will bolster your confidence to stick with a consistent investment approach throughout good and bad times. I’m not talking about where once-off bets fell in your favour (that one time), instead where you stuck to a long-term strategy and have seen the rewards.
So don’t panic and sit tight. Instead put your energy into staying healthy and looking after your loved ones. Also, I am very happy to have a chat with you about your investments if this would help you, in order to reassure you to stick with your plan.