The impact of the coronavirus pandemic and associated restrictions have affected the stock markets. You’ve no doubt seen volatility within your own portfolio and read attention-grabbing headlines. However, it can be difficult to understand what it means for your personal goals.

What’s been happening in the markets?

As Covid-19 began to spread around the world and governments took unprecedented action to slow the virus, stock markets fell sharply in early March.

The below chart shows the performance of the FTSE 100 over the last six months, with a clear downturn as the impact of coronavirus on businesses and individuals became apparent. Whilst gradual gains have been made following the immediate impact, it’s still below the levels seen earlier this year.

On top of this, numerous sources are claiming that an economic recession is increasingly likely as ongoing restrictions continue to affect business operations. As a result, it’s not surprising that some investors are feeling nervous about their portfolio and maybe considering making changes.

If this is the case, it’s important to focus on the bigger picture. A look at how markets have performed historically indicate a recovery will happen in the future. Whilst there aren’t any guarantees, traditionally patient investors that have stuck to long-term plans have been rewarded.

What does the downturn mean for your plans?

Knowing that the market has experienced volatility and that recoveries have happened historically is important. But it doesn’t help put the current activity into the context of your own financial situation.

If your investment time frame and goal is still some time away, you will likely have an opportunity to recover from the losses you may have experienced due to the coronavirus pandemic. With a few more years to invest, focusing on your long-term goal can help.

However, if your goal is approaching, it can be a little more daunting. Here, putting the losses into perspective is important. How has your portfolio performed since you first invested? Even with the short-term volatility, it’s likely you’ve still achieved returns when looking at the bigger picture. That doesn’t mean a downturn as you near your goal isn’t frustrating, but it can help show how you’ve benefitted from investing overall.

If your initial time frame is approaching, you have a choice. Should you take a lower amount by accessing investments now or should you remain invested? This, of course, depends on your personal situation, aspirations and other assets.

Should your current investments allow you to reach your goals, say retiring early, you may decide that you’d rather forge ahead with the plan despite the recent falls. Alternatively, you may decide to put plans on hold or access other assets to achieve them. There’s no right or wrong solution, it’s a decision that should focus on your priorities and financial means. If you’re unsure how to proceed, please contact us.

5 things to remember during investment volatility

  1. It’s time in the market not timing the market: Going back to the point above, you should always invest with a long-term outlook. Trying to time the market can be tempting but it’s impossible to do so consistently. Instead, focus on how your investments will deliver gains over a longer time frame as the peaks and troughs smooth out.
  2. It’s unlikely your entire portfolio is stocks: Headline figures for the falls seen in the stock market can be alarming. However, it’s important to remember that very few people are invested entirely in stocks and shares. Instead, your assets may include bonds and cash. As a result, the fall within your portfolio may be lower.
  3. Your portfolio was aligned to your risk profile: All investments carry some level of risk but how much varies depending on the investments selected. Your risk profile, which considers a range of areas from your goals to attitude to investment risk, will have been considered when setting up your portfolio. This means it’s aligned with your wider financial plan and aspirations.
  4. Investments are stress-tested: When modelling investment performance, we will have considered the impact of downturns and what it means for your goals over the long term. If you have concerns, this can provide reassurance.
  5. Periods of downturn are part of investing: Finally, short-term investment volatility is part of investing. This is why it’s important to invest for the long term. Understanding that the values of investments will fall at times, but that, historically, markets recover is essential.

We know that periods of investment volatility can make you nervous. If you’d like to discuss the current market situation with your goals in mind, please get in touch.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.