Investing In The Time of Corona

Tara Gillespie

There is a lot of noise out there at the moment so we wanted to bring you some clarity and give you practical steps to navigate this challenging time.

What’s going on with markets?

A lot!

I’ve given some details below, but if you aren’t really interested in the details (no judgement from us if you aren’t), the “so what” is don’t panic.

Although the circumstances are different, we have seen market environments like this in the past and they have always recovered.

Last week in the markets was a bit like a rollercoaster ride, one where there is nowhere to hide. 10% falls in a day (the kind of which we haven’t seen for over 30 years) as markets respond to the expected economic impact of Coronavirus. Monday 9th and Thursday 12th March saw 7.7% and 7.5% falls in global stocks and shares.

But both were followed immediately by 4.2% and 7.1% rebounds the very next day.

This was in lieu of central banks and governments stepping in with support. The UK announced £12bn of stimulus to support the economy and small businesses affected by the Coronavirus outbreak for example.

The impact this has had is systemic, very few markets were protected from this heightened volatility (bouncing around). Hence the “nowhere to hide” point above. This comes after +10 years of relatively benign markets and strong growth across the board.

To those of you already invested, this will feel uncomfortable and it’s probably not something you have been through before (if you are under the age of 40). But as said above, don’t panic or make any rash decisions.

And for some helpful suggestions on what you could do, read on.

I’ve lost money on my investments, what should I do?

Losing money is an unpleasant feeling.

And that could be a serious understatement depending on the amount!

Our instincts are (naturally) to protect what’s left from the evil forces that robbed us. I would usually say “trust your instincts” but in this case, it isn’t that simple - fight the feeling!

The best thing is usually (not always but usually*) to avoid selling when the market goes down.

In the example below you can see that if you sell after the market falls, you end up ‘realising’ a £33 loss. Whereas, if you remain invested that loss would only be temporary and with time the value will recover. 

Made Up Market Performance

*If only it was that simple.. So here are 3 steps to follow if you have experienced a loss in your investments.

Step 1 - Remind yourself of your goals

The purpose of this investment will have a major bearing on what the appropriate action is. Assuming the goals haven’t changed and the portfolio was constructed appropriately, then (in theory) nothing should need to change. As a reminder, those goals will be: 

The right investment strategy (and importantly the right risk profile) will be informed by those characteristics. 

Step 2 - Understand your position 

Now look at where you are vs where you want to be. As noted above, if your goals haven’t changed and your portfolio was constructed appropriately for those goals then you shouldn’t be drastically off track. But unfortunately sometimes this isn’t the case, and too much risk was taken. The questions to ask yourself are: 

Step 3 - Action 

There are different actions for different answers to those questions, so here goes: 

Is now a bad time to start investing?

Now could be a great time to start investing as asset values are low (see chart above, you could be investing at the £67 point without having lost anything previously!). Don’t forget the key principles: