This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
The first quarter of 2020 witnessed one of the worst falls in global stocks in many years. At the end of March the FTSE 100 posted its worst day since the events of Black Monday in 1987, and Wall Street in the U.S. recorded its fastest fall since the 1929 crash. The pandemic and resulting lockdown had taken its toll on the markets, with investors and pensions badly affected.
With lockdown now easing in the UK at the time of writing (June 2020), are there now signs that this bear run is now over? Can investors relax and adopt a more aggressive strategy in order to ride stocks which are anticipated to rise in value? Here at Elmfield, our Lancashire-based financial advisers take a look at some of the recent market trends and how things might transpire in the coming weeks and months.
We hope this content aids your thinking. If you’d like to speak to an independent financial adviser you can reach us via:
T: 01282 772938
E: info@elmfieldfp.co.uk
Tentative early recovery signs
Signs of falling markets in response to the pandemic started to appear in February 2020. The FTSE 100, which had held at around 7,403 between January and the 21st of February, fell to about 4,993 by the 23rd of March. A similar story played out in the U.S., with the S&P 500 dropping from 3,337 to 2,237 within the same period. By early March, many pension funds were nursing losses of 10% as the equities in their portfolios fell, with 90% of UK pension funds hit.
By the 24th and 25th of March 2020, however, it started to look like the markets were recovering as the governments of developed nations announced economic support measures to support workers and businesses during the lockdown. Since it’s low-point of 4,993 in 2020, the FTSE 100 edged slowly up in April and May to arrive at 6,253 by the 17th of June. Likewise, the S&P 500 was almost back up to where it was in February at 3,113. As lockdown measures ease in the U.S., Europe and other countries, business and consumer demand appear to be restarting, bringing some tentative – but encouraging – early signs of recovery.
Implications for investors
It is still premature for financial advisers to confidently state that the markets are now “out of the woods”. A second wave of COVID-19 in the UK is still a possibility (which could cause things to plummet again). At the time of writing, there are reports of cases spiking in densely-populated U.S. states, for instance, leading to a dip in stock values. Yet only two day prior, the media was starting to speak of a “stock market recovery” following the announcement by the Federal Reserve that it would buy individual corporate bonds.
These erratic events should serve as a strong reminder that trying to “time the market” with an investment portfolio is very difficult and can lead to costly decisions. Rather, spending time in the markets is often the choice which results in long-term rewards for patient inventors, who weather the short-term dips in performance to reap overall investment growth in the future. Those who pulled their money out of the stock markets in March 2020, for instance, are likely (sadly) regretting that rash decision now in June. Such a move is only certain to achieve one negative outcome: crystallising your losses.
The tentative market recovery should also be a helpful reminder about the importance of having a properly-diversified investment portfolio. Those who were invested solely in equities in March 2020 were likely hit harder by the stock market decline compared to an investor who also held some defensive assets (e.g. UK government bonds). It’s also important to diversify within asset classes as well as across them. After all, any investor with a portfolio containing equities which were weighed too heavily towards the oil, aviation and hospitality sectors have also probably been licking their wounds more than those investors who had spread their equities out more.
Conclusion & invitation
Here at Elmfield, our Lancashire-based financial advisers believe that investment strategy is hugely important to give investors the best chance of long-term wealth preservation and growth. Rather than react impulsively to fluctuating markets in the short-term, the evidence shows that sticking to your strategy during even the rough time is a wiser choice than trying to time the market. As the famous investor Warren Buffett once said:
“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.”
If you are interested in starting a conversation about your investment strategy, then we’d love to hear from you. Get in touch to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
E: info@elmfieldfp.co.uk
