Investments & Covid-19: What’s Going On?

K&M Financial/ May 4, 2020/ News

We have just had one of the longest Bull runs in history (investments increasing year on year) and not one of us professional or lay persons could have foreseen the events of 2020 in terms of World Health.  Markets generally fall for financial reasons, banking crisis, single country economic stagnation or failure, wars or acts of terrorism which regrettably we are more familiar with the concept of.

People obviously have concerns when they see financial markets falling around the World. At one point for a very short period of days not weeks the FTSE had fallen over 30%. This along with the UK media wanting to dramatize headlines and the impact of the falling markets and the negative impact of COVID 19 on the economies across the globe understandably all adds to people’s worries and concerns.

At K & M we have always tried to take a conservative approach to investing our clients’ money, spreading the risk over several Fund Managers each investing in multi asset funds which also helps to diversify their investment. This is not because we are mind readers in anticipation of global or UK catastrophic events but because it’s a proven investment model that fits 99% of our clients.

A typical “low to medium” risk investor through K & M will have between 25% & 45% invested in equities (shares) generally UK funds, but also some in other countries in places like Europe and the USA. These portfolios dropped by around 6% when the FTSE went down by over 30%.  Whilst any loss is a loss at the end of the day we hope that this puts into perspective for our clients the real perceived loss to their holdings because until you cash in your holdings in fact there is no loss – other than on paper.  

We understand that this may be a concern for some of our clients, however, over a normal 10-year period, historically investors have seen negative returns for 2 to 3 years during this period of a similar level. What we also know is that when markets fall, they also rise again. What we don’t know is how quickly this will happen.  We always recommend that clients invest for the medium to long term, this gives the best chance for growth.

Thoughts on moving to cash

When there is a downturn, some investors try to minimise their losses by selling and exiting the market when share prices are below what they paid for them, this only acts to crystallise losses.

This means that the investor has made losses from the downturn, or ‘crystallised’ them. Investors who do this also miss out on any potential gains if and when the markets rebound. Therefore, we would not recommend our clients to transfer their assets to cash.

Have a read of the attached article “A guide to investing in volatile markets” which contains relevant information, and please feel free to give us a call regarding this or any other query you may have.

Most importantly, please stay safe during these unprecedented & uncertain times.

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