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TIME TO PANIC ? OR TIME TO INVEST ?
by Sam Hulson of First Equitable
It certainly feels like we are on a hamster wheel of perpetuating doom and gloom nowadays : First , we endured Brexit for what felt like an eternity , and no sooner had the ink dried on a deal that would define ‘ that ’ particular relationship , the world was reporting its first cases of a novel coronavirus that would quickly develop into a global pandemic . Within weeks we had overloaded healthcare systems , lockdowns ( in the name of trying to protect the former ) and wrecked economies . Central banks responded globally , printing money on a level which eclipsed even the financial crisis of 2008 , and in the process creating national debts that will take generations to repay - did you know that about 20 % of all US dollars in existence were created in 2020 alone ? And then , just as it feels like the pandemic is finally over ( was there an official announcement ? It seemed to disappear from the news like a magic trick ) we have invasions . War . Even the threat of nuclear strikes !
What do I do now ?
Will there be a peaceful outcome ? Or will this lead us into World War III ? Some would even try and tell you it has already started . The truth of the matter is I don ’ t know . Nobody knows , really . It is certainly a tragedy and on so many levels . Given there are so many varying future possibilities , many people are wondering what they should do ?
Perhaps now would be a good time to take a lesson from the late Jack Bogle ( Vanguard ):
“ My rule — and it ’ s good only about 99 % of the time , so I have to be careful here — when these crises come along , the best rule you can possible follow is not “ Don ’ t stand there , do something ,” but “ Don ’ t do something , stand there !”
It is certainly a point we like to drive home to clients when these periods of significant volatility inevitably arise . That said , there is still an important point which shouldn ’ t be overlooked here : They had a plan . They had a plan which was created for them after a thorough evaluation of their needs and objectives , together with their risk appetite and capacity for loss . A big part of that plan being the necessity to follow it through even ( especially ) when there may be voices elsewhere causing you to question that plan . Now if you didn ’ t have a plan , maybe it is still best to do nothing ; equally it may be a very good time to check if , actually you do need a plan - or at least maybe just a few directions to get back on ( or stop you falling off ) track .
Lessons from history
Maybe you are in the fortunate position of having some cash to invest ? Whether this takes the form of a lump sum or just some monthly disposable income you would like to see working harder . Now could be a good opportunity to enter the market . That ’ s not to say things might not got worse – or even considerably worse . They might of course . However , if you are prepared to take a long-term view then the current and likely coming volatility could provide some opportunities to invest your money based on valuations that are lower than we have seen since , well , the last crisis of course !
If we use the FTSE250 as an example : the index fell to below 6,000 points in 2009 but had pretty much doubled just a few years later . During the Covid pandemic , we saw the index fall from a high of over 22,000 to low of just over 15,000 . Anyone entering during these low periods would have enjoyed a phenomenal return as the index soared to a high of 24,353 within around 18m ’ s . The same thing can be seen within global markets around the world , with returns in the US for example , even greater . Perhaps the most relevant point here is that there have been countless crises over the years and global markets have taken some pretty painful hits each time . The one thing they have all had in common however , is that they have recovered . Some have been quick ; some have been drawn-out ; but they have all recovered .
Pound cost averaging – Reduce the risk of buying in volatile market conditions
A simple - but in the right conditions - very effective method , is to gradually phase the money into the selected investments . The basic principle being when markets are low you acquire more for your money and when markets are high , you acquire less . Much like you will be doing if you are making regular contributions to a pension . The same concept can also apply to spreading a large investment over a period of time . This can also reduce the risk of buying on the wrong day in highly volatile conditions , such as those we have been experiencing of late . The phasing of the investments can be automated or can simply be done on ad hoc basis . Regardless , just make sure you are happy to take the long-term view .
Need advice ? If you need some advice regarding existing or new investment opportunities in these uncertain times we find ourselves in , please contact our office to arrange a free initial consultation . You can also email me at : sam . hulson @ first-equitable . com .
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