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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 us and we will be in touch right away.
