Market volatility, Coronavirus and your investments
Investing involves risk. The value of your investment can rise and fall. Your capital is at risk.
These warnings come on every piece of advice around investing that you can find. They are the mantra of every investment professional helping you manage your money. As investors, we know we are making a conscious decision to take a degree of risk with our savings, in hopes of better returns down the line.
But knowing something is not the same as experiencing it.
When the markets fall sharply, it’s natural to worry about the impact on your own investments, even when your head is telling you not to. Should I have seen it coming? Did I make the wrong choices? Should I sell? Should I wait and see? Am I really the long term investor I thought I was?
The reality is that markets move for all kinds of reasons. Sometimes those reasons are anticipated. Sometimes they are totally unexpected, so called ‘Black Swan’ events. Shares can be particularly volatile. And when the cause for this volatility is a global health scare, the impact of which we’re yet to fully understand, no one knows for certain what will happen next.
That can feel scary. I should say here that I am focusing on investors in this article, but it goes without saying that many, many people are worrying about Coronavirus for much more important reasons than money. My sympathies go out to everyone who has been in affected in some way.
But here is what we do know and what should help us take some comfort. Most importantly, market do tend to recover and when you are invested for the long term, particularly in a pension, short-term volatility matters far less because you do not need to access your money.
For those close to retirement, or needing access to money, processes should be in place to help you reduce your risk, typically by holding a mixture of assets which can help to dampen the impact of market disturbances.
Data has been reassuring through disruptive events such as the 2008-09 global financial crisis. It suggests that fund investors do tend to take a longer view and immediate reaction tends to be limited.
Of course it is for every individual investor to make up their own minds about their investment strategy. If you use the services of an investment advisor, they will help steer you on whether any action is needed. Investment experts, fund platforms and market commentators are also potentially good sources of information.
Look carefully at what they are saying and take a view that feels right for your time horizon and risk appetite. Doing nothing can sometimes be just as good an option as doing something.