Iain McGowan, Investment Director
In March of 2020, the spread of the coronavirus brought daily life to a standstill – and investment markets tumbled. Four months later, we are starting to see cautious signs of normality returning. Lockdown has eased in England and, to a lesser extent, here in Scotland, with businesses gradually starting to resume activity.
The same could be said for investment markets, many of which have gained back quite a bit of lost ground since falling steeply back in March.
While that is encouraging, there’s still a long road to go before the economy is back on a solid footing. And you’ll possibly still have seen a drop in the value of your savings so far this year, as a result of this market turbulence. With that in mind, we want to address some of the most frequently asked questions about investments four months after the "Covid crash".
Top investment questions
- What has been happening with investments since the Covid crash?
Investment markets (including shares and bonds) had a steep fall in March, when much of the economic activity around the world came to a standstill. Since then, we have seen many of these markets gain back some lost ground. Central banks (including the Bank of England and the US Federal Reserve) have started programmes that aim to stimulate the economy, and have cut interest rates. Governments have announced massive relief packages as well, and these actions have gone a long way towards helping markets recover somewhat. Some economies have started to re-open, which has also been a boost.
- Does this mean the worst is over?
Unfortunately, not yet. The outlook for the economy for the rest of 2020 is still relatively grim, although many economic experts (such as our investment partners at Schroders) are expecting a healthy recovery over the course of 2021 if all goes well. But markets are often driven not just by what is currently happening, but by what traders think might happen over the next few quarters. So as they looked forward to business-as-usual starting up again, shares started to gain momentum. But when reports come out of new Covid cases, traders get nervous again and share prices retreat.
Much like with Covid itself, there’s still much uncertainty and nervousness out there, so we’re not out of the woods just yet. It’s quite possible we will see this cycle continue to play out, where investment markets go through phases of picking up steam, then get rattled by new headlines. But on balance, we think we’ll see a slow and cautious sense of recovery into next year and possibly beyond.
- How will this uncertainty affect my pension or investments?
It’s possible you’ll see the value of your pension fall and rise over the short-term, in line with investment market performance. And the value you see on your statement will also be a reflection of what you’re invested in. Share markets, for example, can rise and fall more dramatically but eventually offer the best long-term opportunities for growth, while bonds are generally more stable but tend not to return as much.
At Scottish Widows, we are long-term investors, meaning that we take a view of at least 5 to 10 years out. While the investment markets have been turbulent, and will continue to be in the short-term, history tells us that staying invested provides the best opportunity for long-term outcomes. Markets have had dramatic declines before, such as the “dot com” crash and the global financial crisis of a decade ago, but have recovered over the long term in each case. So while the Covid crisis isn’t over yet, there’s no reason to think that share prices won’t eventually recover and begin to rise again.
- Should I look to move/sell my investments?
We can’t provide you with specific investment advice, but we can remind you that staying invested for the long term delivers an opportunity for growth you wouldn’t have, were you to sell your investments or move to cash while values were low.
Someone who had sold out of their investments in late March 2020, for example, will have missed out on the market recovery of the past few months. Someone who has continued to pay into their pension plan, on the other hand, with the aim of not touching the money for a number of years, will have benefited from investing at depressed values, followed by the recent improvement in markets.
That said, there are ways to adjust according the level of risk you are comfortable taking. We’ve created a video series entitled "Investing in Volatility", which you can watch here. The videos explain what market volatility is, and what options you have, should you wish to make any changes. We also recommend you speak to a financial adviser, if you have one.
- What is Scottish Widows doing to keep us informed?
The investment team here at Scottish Widows, along with our strategic investment partners, continue to work hard to monitor market developments and provide updates to our customers.
We have our Coronavirus Hub that shares our latest information on how it could be affecting your pension and investments. We also recently introduced our Expert Sessions or “Experts at Home” series of videos, featuring our team of experts talking about relevant topics such as investments and how to be on the lookout for pension scams. You can watch the videos here and we hope you find them helpful and informative.
- What measures are we taking to protect investments?
Please be assured that all of us on the investment team here at Scottish Widows, along with our strategic investment partners, are working hard to monitor developments and keep you informed.
This is an opinion piece by our Investment Director, Iain McGowan. We recommend that you speak to your financial adviser before making any financial decision across your pension and investments. If you don’t already have a financial adviser unbiased.co.uk will help you find one near you.
The value of your investment and any income from it is not guaranteed and can go down as well as up. You may not get back the original amount you invested.