coronavirus and the markets

Market Update: The Coronavirus Effect

Yesterday, 12 March 2020, marked the worst day in the markets since 1987, with the FTSE 100 (the main UK index) dropping by more than 10%.

As coronavirus continues to spread around the world, so too does investor fear that economic growth will be destroyed in its wake.

Neil Wilson, chief market analyst at summarised the situation:

“Markets are at breaking point…no one knows what a total economic shutdown, however temporary, looks like.”

You can read more detail on the particulars of yesterday’s market movements on the BBC website.

There’s no doubt that this news will be causing concern for investors. We wanted to address some of those concerns head on…

How long will the markets take to recover?

Whilst we are in relatively unchartered territory with coronavirus, the markets have suffered similar crashes throughout history. In most cases, they bounce back and investors that sit tight and wait it out come out the other side relatively unscathed. It’s the nature of investing – you don’t get the highs without some lows.

“Black Monday” – a fateful day back in 1987 – saw the Dow Jones index drop 508 points – 22.6% of its value. In real terms, that meant that a £10k investment was reduced to £6,610. Many investors panicked and sold out. But those who were patient were rewarded – by 1997, that investment was worth £32,690.

Just two years ago in early 2018, we had “Wobble Week” where the FTSE 100 dropped 8% within a few weeks. However, it went away almost as soon as it came. Within a matter of days, levels had bounced back. At the time, there was a lot of noise and a fair degree of panic, but looking back at the ebb and flow of the markets, it’s barely a blip on the register.

It’s impossible to predict how long markets will take to recover, but the key thing to note is that they DO recover in time. There is no need to panic!

How do our model portfolios look?

Regardless of our soothing words, we’re sure that our investors will want us to be more specific about their investments. We are committed to transparency and are happy to share this information publicly below.

Firstly, here’s a snapshot of our risk 3, 4,5 and 6 model portfolios over the past month, compared to the FTSE100:

You’ll notice that, whilst the portfolios have inevitably experienced some losses against this backdrop, those losses are significantly less than the FTSE 100 experienced. This is thanks to our careful asset allocation and choice of funds. We’ve spoken numerous times about the importance of diversification within your investment portfolio, and these figures perfectly demonstrate the strength of this strategy.

This can be clearly seen when we look at performance of our portfolios over the past year compared to the FTSE 100:

Those figures in a table:

PortfolioPerformance since 12 March 2019
Risk 3 – Cautious balanced+1.47%
Risk 4 – Balanced+0.13%
Risk 5 – Adventurous-1.02%
Risk 6 – Aggressive-2.89%
FTSE 100-23.25%

We hope this offers some reassurance, but if any of our investors would like to ask more specific questions, do feel free to call the office on 01603 625100. From Monday 16th March, we are more than happy to arrange an appointment to speak on the phone or via video call rather than your usual face to face meeting if you prefer.

Is there a bright side to all this?

We’re glad you asked. Those who pay into their investment on a monthly basis could potentially be about to benefit from the market drop as they can buy new shares at rock bottom prices. It’s like being able to go back in time and buys shares at historical rates. There’s a very good chance that these share prices will bounce back and you will win!

This also presents an opportunity for new investors to take a step into the markets whilst share prices are low. But please, if you do decide to do that, make sure you do so with the guidance of a financial adviser. Hopefully we’ve demonstrated with the figures above the value of doing so. As with all market crashes, it’s likely to be the DIY investors who will suffer most as a result of the recent movements. Don’t fall into that trap.

I don’t have investments. Does any of this affect me?

Even if you don’t “invest” your money, millions of people have pensions tied into schemes which invest these savings. The value of your pot at any given time is therefore influenced by market movements. The key thing here is to remember that your pension is usually a long-term investment so, again, there’s no need to panic.

The reaction to coronavirus is having far-reaching implications all of which will affect the markets. We will continue to keep our clients and investors up-to-date on how the situation might affect your finances. But for now, keep on washing your hands, use your common sense and look after those people most at risk.

From Monday 16th March, we are more than happy to arrange an appointment to speak on the phone or via video call rather than your usual face to face meeting if you prefer.

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