Don’t panic – really!

Don’t panic – really!

These are awful times for many reasons, and investors are really feeling it. Looking at your pension or ISA or investment portfolio and seeing it be £5,000 or £10,000 or £20,000 less than it was a week ago is gut-wrenching. Looking at all the scary stock market images, makes your stomach drop:

And the natural reaction is to panic, to try and get out, to try and minimise losses.

But it’s important to remember that, right now, they’re not losses. While your portfolio remains invested, you haven’t suffered a loss other than on paper. That loss only becomes real once you physically sell out of the stocks.

It’s like buying your home for £250,000 and the property market crashing and you seeing on Zoopla that your home is now worth £200,000 – but actually, as long as you’re not planning on selling it, or remortgaging it, then it makes no difference whether it’s “worth” £200,000 or £300,000. The value only becomes an issue when you need to access or use it in some way.

And it’s the same with the stock markets.

Also remember, it’s all about perspective. That same chart from above, just looking at today (17th March 2020):


Across all indices:

Since the FTSE100 was formed:

Different lenses can present information in a very different way.

Also important to remember, is the nature of investment markets. The cycles that are absolutely guaranteed to occur, over and over. Covid-19 has taken the world by surprise but, in reality, after the longest worldwide Bull market in history, some sort of downturn was expected in the not too distant future (albeit not as dramatic as has happened!).

A Bull market is a price increase of more than 20%. A Bear market is a decrease of more than 20%. This graphic from Vanguard shows a number of things:

  1. Firstly, the cyclical nature discussed – gains, falls, gains, falls. Different crisis causing it each time, but inevitable and consistent.
  2. Many more Bull years than Bear years.
  3. Far larger gains in Bull years, than losses in Bear years.
  4. This data is going back over 100 years; we’re in a new era now, but so were we in the ’70s compared to the ’30s. People adapt and adjust. Markets adapt and adjust.

It’s not to say things are easy. And it’s not to say the recovery will be quick. But history tells us the recovery will happen.

The only thing that is certain right now is that selling out of investments will crystallise a loss. And waiting for markets to start to climb again before reinvesting will just mean it’ll take you longer to benefit from the growth and get back to where you were.

So, the Keep Calm and Carry On motto, while wildly overused, is extremely relevant and accurate right now for your investments.

Cathi Harrison – CEO, The Verve Group.

 

 

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