When it comes to investments and financial markets, there’s no shortage of media attention, especially when markets are falling.
It has not likely escaped anyone that there’s been a great deal of attention focused over the last 2 weeks on the slump in markets across the world on the back of the coronavirus outbreak and a disagreement over oil prices between the oil-producing nations of OPEC and Russia causing the price of crude to take a tumble.
Markets have been volatile, with money being wiped off stock markets around the world. The media loves this — there’s more money to be made in doom, gloom and crisis than there is in measured and rational commentary on the situation. It’s in the media’s interests to stoke things up to get clicks, sell papers and attract viewers.
Moreover, it’s important to remember that yes, shares have lost value, but very few clients are 100% invested in shares. Some assets have actually gone up in the past few weeks, but even though the likes of government bonds may have advanced, that’s not what sells papers.
Similarly, although share prices themselves may be down, it’s important to remember that dividends do a lot of the real work within a portfolio, even if we seldom hear about this on the news.
It takes conviction not to be pulled this way and that by the whims of headline writers. In all circumstances, especially when there’s talk of ‘crises’, it can be tempting to try and time the markets. While the benefits of getting it right are obvious, it’s very difficult to predict with any certainty the best time to buy or sell.
Markets move quickly, which means the risk of getting it wrong is very high and can have significantly negative consequences for your investment portfolio.
By trying to time your entry, or exit, from the markets, you could end up selling low and buying high, thus not only suffering the losses you’re trying to avoid but also missing out on the highest periods of growth that often follow a market correction.
It’s often the case that investors who remain invested throughout negative media coverage about market turmoil do better than those who feel prompted to sell up and miss out on some of the best months the markets have to offer. Perhaps this cartoon by the well-known US financial planner and journalist Carl Richards sums it up…
Essentially, if you try to time the market and get it wrong, you could end up being worse off than if you’d stayed invested for the duration and rode it out.
Most people are invested for the long-term and so should take a similarly long-term view of markets.
The worst FTSE crash in history happened in October 1987, when the market plunged precipitously. Yet by the end of the year, the FTSE was actually up by 6% over 1986. The dramatic fall attracted headlines and that’s what we remember today, rather than the steady growth of 40%+ seen in the 9 months to September 1987 leading up to the crash.
And if you zoom out even further, taking a 30 year+ horizon, you’ll see that the same “record” crash is actually barely a blip overall.
All in all, this is a worrying situation and rightly so. The impact of coronavirus on the wider economy, rather than just stock markets, will be felt across the world as demand is sapped by constraints on human activity.
Tourism will take a huge hit; so, likely, will the retail sector and consumer spending in the worst-effected countries because people either don’t want to or can’t get out to travel and spend.
There are stories of Chinese factories being next to idle for want to workers trapped outside of big cities, where they’ve been stuck since the Chinese New Year celebrations. This could impact manufacturing centres across the world, with the supply chain being more globally integrated now than ever before.
However, it’s important to remember that, beneath all of these legitimate concerns, lies an economy that’s still functioning, with demand still present. It may slow down for a bit but it certainly hasn’t gone away, and will likely come back all the stronger hereafter.
Jonathan Cooper
Senior Paraplanner at Drewberry
📞 01273060042
jonathan.cooper@drewberry.co.uk
Ultimately, the value of pensions and investments can always fall as well as rise, meaning you could get back less than you invested. Yet the best advice we can offer during market upsets, especially for those investing for their long-term future, is to stick it out and hopefully enjoy the eventual rewards.