Every now and then in the investing world there is a ‘black swan’ event that can lead to some very testing times for your investment portfolio.
A black swan is an unpredictable event that can have a severe impact on an economy.
The Coronavirus is looking like being one of these types of events.
Coronavirus impact on world stock markets
There has already been much written on the Coronavirus, it’s symptoms, death rate and how we should handle it, so I don’t wish to repeat this information here.
What I do want to briefly cover is its potential impact on your investment portfolio.
As I write this article, Tuesday morning (10th March 2020), we have just seen the US and UK stock markets fall nearly 8% in a single day. Meaning it was the worst day of trading since the financial crises of 2008. The UK FTSE 100 stock market index is actually down 22% since it’s last peak in July 2019.
The media has run its favourite headline during these testing times…. “Billions wiped off the value of shares”. They never say “Billions wiped on” during the good times though do they?
What to do with your investments during these testing times
So, doom and gloom for now. What should you do?
First of all, don’t feel silly for worrying. We all do, it’s human nature. My own family investments are invested the same way as our clients and I to have felt the pain of seeing these investments go down rapidly over the last few days.
But there are 4 things to remember:
#1 – Has your financial plan changed?
When you made your original investment, the portfolio should have been designed to expect these types of scary events.
Investing is about long term wealth building not short-term noise.
If your circumstances haven’t changed, the plan was built correctly, and your portfolio was built correctly for your plan, there should be no need to change.
#2 – A good portfolio is not 100% invested in the stock market
While stocks will give you the best long term returns, there are other assets that you can invest in that perform differently during different events.
So having less risky assets alongside your stocks can limit any fall in overall value.
#3 – Let your investment portfolio do its thing
Hopefully your investment portfolio is invested with these skills:
- Low cost.
- Regular rebalancing.
- Dividend re-investing.
All our clients are invested in low cost portfolios meaning less of their money is lost to charges. You can’t control investment returns, but you can control costs.
Every 6 months our client’s investments automatically rebalance into the right asset allocation meaning they automatically sell assets that have done well and buy assets that are cheap.
For most of our clients, any dividends earned on their portfolio is re-invested back in and therefore buys cheaper units at times like these.
#4 – Now is a great opportunity
If you have spare money in cash that you can afford to invest, now is a great time to top up your portfolios.
Stocks around the world are having a sale and you can pick up some great bargains.
Over the last 50 years we have seen a number of virus outbreaks. Think SARS, Swine Flu and Ebola to name a few. Over this time the world stock market has grown over 2000%! MarketWatch has a great article and image depicting this which you can see here.
Remember stock market declines are temporary, the advance is permanent.
If you are worried about the Coronavirus during these testing times and how your investment portfolio is being impacted then why not take advantage of our free 15-minute call. You can speak to a Chartered Financial Planner who will listen to your situation, give you an outline of what you need to consider and guide you in the right direction to a properly built investment portfolio.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.