At this time, the value of your clients’ investments may be the least of their worries. Concerns about their own health, and that of their friends and family, are likely to be at the forefront of their minds.

However, while governments around the world take draconian steps to stem the spread of the coronavirus, one of the most immediate consequences of the virus outbreak has been the impact on global stock markets.

Between 1^st January and 20^th March 2020, the MSCI World Index – a weighted stock market index of 1,644 stocks from companies throughout the world – fell by around 30%. While clients may be concerned about the short-term volatility of the markets, it’s important that they remain calm and focused on their goals.

To help you reassure clients, here’s some useful information.

Short-term volatility in stock markets is normal

Whenever an individual invests in equities, short-term volatility is something that they should expect and accept. Everything from oil prices to Donald Trump’s social media updates can affect what happens to markets around the world, and so on any given day or week prices will fluctuate in the short term.

However, in the long term – and that’s what the vast majority of people are investing for – markets tend to offer positive returns. The pandemic may last months or even into next year, but life and business activity will normalise and so will the markets over time.

Here’s the performance of the MSCI World Index in the year, three years, five years and ten years to the end of December 2019.

Source: MSCI

During the decade to 31 December 2019, the annualised return was 10.08% per annum. That is despite the index recording a negative performance in 2011, 2015 and 2018.

In the longer term, MSCI report that the annualised return of their World Index between the end of 1987 and 2019 was 8.08%. That is despite a 40% fall during the global financial crisis in 2008.

If a client’s long-term goals haven’t changed, it’s unlikely that their plans should. The goals of your clients are likely to be the same as they were a week or a month ago. Our investment strategies are designed with the long term in mind, and this naturally considers periods of both positive and negative returns.

Bull and bear markets

Here’s some more data to show how periods of declines tend to be rather shorter than periods of growth.

• Bull years – a price increase of more than 20%
• Bear years – a price decrease of more than 20%

Notes: Calculations are based on FTSE All Share (GBP Total Return). A bear market is defined as a price decrease of more than 20%. A bull market is defined as a price increase of more than 20%. The plotted areas depict the losses/gains ranging from the minimum following a 20% loss to the respective maximum following a 20% appreciation in the underlying index. Time period: 31 January 1900 to 31 December 2018. Calculations based on monthly data. Logarithmic scale on y axis.

Source: Global Financial Data.

As you see from this chart going back more than a century, the average ‘bull’ period of stock market growth lasts for almost 8 years, while the average ‘bear’ period lasts over a year.

Clearly, a stock market correction can see a significant decline. In the month to March 20^th, the FTSE 100 index declined by around 27%, affecting the value of any client’s pensions and investments.

However, it’s important to consider the long term, and that, over the last 100 years, markets have always recovered.

Note: Past performance is not a reliable indicator of future results. The value of investments, and the income from them may fall or rise and investors may get back less than they invested.

Two other things clients should consider

1. Now is a bad time to panic. If a client’s home had fallen in value in the short term, it is unlikely that they would immediately put it up for sale and realise a loss. While it is very easy for emotions to take over at this time, reacting to a fall in the markets can be a mistake, and many studies have found that this is one of the main reasons why investors lose money.
2. Clients typically have a diversified portfolio. This means that, for example, a fall in the value of the FTSE 100 is typically not the same as the fall in the value of their portfolio. Our clients have diverse portfolios that include exposure to other asset classes, for precisely this type of situation.

Continuing to serve you during this difficult time

Last week, the government updated its advice in relation to the coronavirus pandemic. So, in line with many other individuals and businesses, we’re taking some action.

We’d like to reassure you that, where possible, our business will continue as normal. While there will clearly be some changes to our ways of working in the coming weeks and months, it’s important to underline that we are here, and available, if you or your clients need us.

Useful resources

If you are concerned about the wider effects of coronavirus, you may find the following resources useful:

• The government response to coronavirus
• NHS information about coronavirus

Get in touch

In the coming weeks, we’ll be keeping things as close to ‘business as usual’ as possible. So, if you or your clients have any questions or concerns, please get in touch with us. Email enquiries@boolers.co.uk or call 0116 2407070.