An update on the impact of Coronavirus on your investments
Three months ago, investment markets saw a dramatic downturn due to the outbreak of coronavirus and the effect that lockdown would have on the economy. You may be wondering what has changed in markets since then, and how would it affect the outlook for your investments?
The falls in the markets back in March were caused by business-as-usual being disrupted on a global scale, and the fears for the effect it would have on the earnings and share prices of companies across the world. By mid-June, many equity (or share) markets around the world had returned to close to where they were before the “Covid crash”, although in the UK, the FTSE 100 hasn’t recovered as strongly.
But there is still a long road ahead. Around the world, governments are monitoring for spikes in new Covid cases as they begin to lift lockdown measures and re-open their economies. A second wave could mean a return to quarantine in some places, while in others, officials have indicated they wouldn’t shut down the economy again. Central banks (such as the Bank of England and the US Federal Reserve) have taken sweeping actions to pump money back into the system, while governments have announced huge relief packages. This has helped shares recover, but at the same time, the economic outlook from the banks remains grim.
Many economic experts at first predicted a “V-shaped” recovery – a sharp decline followed by a sharp upswing. Now, a common view (from experts including our investment partner, Schroders) is that the recovery will be more “U-shaped” – that is, a sharp decline, followed by a long trough, before gradually starting to move up again.
We are still in challenging times, and we think the improvement in share values is not in line with the economic reality facing us over the next few months. But what it has told us, is that a long-term investment mind-set remains crucial. Market reactions are often short-term and emotional, whether based in fear or optimism. Share prices, for that reason, often reflect what professional investors think might happen in the future, rather than what is happening in the moment. That’s why it’s so important to keep focused on long-term goals, rather than the day-to-day fluctuations in the markets.
A long-term investment
A pension is a long-term investment. We know it’s difficult seeing your pension and investment values fluctuate. However, as we’ve seen through previous declines (such as the Global Financial Crisis), during periods of uncertainty the stock market will drop, but it has also recovered over the long term. Someone who had closed out their investments in March 2020, for example, will have missed out on the market recovery of the past three months. And while the Covid crisis isn’t over yet, there’s no reason to think that share prices won’t eventually recover and begin to grow again.
While past performance can’t be relied on to predict the future, in our view this current crisis will be a painful but relatively short period of struggle. Taking a longer-term view over your investments can allow your funds to grow over time.
If you want to know what you're invested in, and how current conditions are affecting your account, please speak to your financial adviser. We can help you find a financial adviser if you don't already have one. Advisers will normally charge for advice.
Finally, to learn more about investing during times of volatility, watch our video series.