COVID-19, coronavirus: call it what you will, this modern-day plague has been wreaking havoc across the globe for some time but this morning I awoke to some of the most dramatic headlines I have read yet.
‘Coronavirus spreads in three continents; markets brace for global recession’ Reuters
‘…we could be witnessing the beginning of a global economic depression similar to, or perhaps even worse than, what the world experienced in 1929’ Daniel Wagner in this morning’s South China Morning Post
‘a pandemic would trigger global and US recessions in the first half of the year.’ Moody’s
The hope of a rebound in economic growth, which we were looking forward to at the beginning of the year, lies in tatters and the markets have reacted accordingly. However you spin it, the short term outlook for the markets is dire with equities tanking after an extended strong run, triggering panic selling and sending investors to the safer haven of gold, which has reached record highs. But should you be trading in your equities?
While it is difficult to ignore the noise and headlines, that’s what you should try to do. Short, sharp falls are nothing new in equity markets. Equities are, by their very nature, sensitive to market sentiment and therefore volatile. Prices drop fairly dramatically all the time but they will inevitably recover sooner or later. Granted, this fall may be more serious than recent scares and it may take longer for prices to rise back up but the cyclical nature of markets is undeniable. The markets will eventually ride this out and when they do the recovery could be dramatic. If you burn your bridges now and sell, you won’t be in the markets to benefit from the bounce back.
Trading in response to global uncertainty is not, in my experience, an investment strategy that works. Even though the outlook is more uncertain than it has been in a long time, timing markets in the short term remains devilishly difficult to do and can cost investors dear in terms of performance.
Even with the current level of panic, the most successful strategy remains to let compounding do its work over a long term investment horizon to build your wealth. Of course it is important to ensure that you have a diversified portfolio and that it is balanced with your risk tolerance but when that is the case slow and steady still wins the race, even if you have to negotiate hiccups like the one we are currently experiencing along the way.
If you’re unsure about how diversified your portfolio is and whether it is suitable for your risk tolerance then these are issues to raise with your financial planner. And if you don’t have one, perhaps I can help? Please feel free to contact me at lcalver@infinitysolutions.com.
Over the years I have helped hundreds of clients organise their finances. For me, financial planning is not limited to a single piece of advice and then moving on as is common in the industry. Instead, I like to build long term relationships and help people manage their finances to meet their needs as circumstances change. As a result, many of my clients have been with me for a number of years. They live throughout Asia and further afield but know that I am only a Skype or telephone call away.
