As I am writing from behind my home desk, it strikes me how fast we get used to this new reality.
Since my last article we have further witnessed some of the largest daily fluctuations in stock markets since the financial crisis, with the last one being a jump of most indices of well over 10% following the $2Tn stimulus package agreed by the US Congress. If one could only time this! This volatility of the last weeks comes on the back of continued concerns with the virus; how long it will last and the impact on the global economy. When discussing this with colleagues and clients and when reading reports from Fund Managers and the financial press, the human dimension and our loved ones’ health is everyone’s primary concern and then of course, this contraction and our clients’ interests are paramount.
For new investors, this can be an extremely worrying time, as they will not have been used to such short-term volatility. For seasoned investors who went through the financial crisis of 2008, the technology bubble of 2000 and even black Monday in 1987, the short-term plan being witnessed is often seen as a confirmation that, although stock markets can’t always go up, over the long term they have done so.
How long will we continue seeing these jumps?
It is generally assumed now that with this contraction, a recession seems inevitable. Whether this will be a V shaped one, i.e. suggesting a strong recovery, or a U shaped one where the bounce back can take much longer, is a popular topic of discussion. Some analysts say this contraction should prove the shortest ever, suggesting it could last two quarters, compared to the average of four quarters. As the cause of market stress is a public health crisis rather than a leverage or profitability crisis, fundamentals would improve when we have a peak and then slowdown in covid-19 daily infection rates in the US and Europe.
Another question raised is if we have hit the bottom yet?
At the moment we are still very much in this over-reaction phase. The next few weeks will be critical to see the effects of the containment measures and to estimate the potential length of the economic contraction. Until then we can expect the high volatility to continue.
For long-term investors and fund managers alike, this offers new buying opportunities. However, markets are unpredictable, so it would be wise to spread your risk through diversification in a longer term investment strategy, keeping a few core principles in mind:
Diversification – diversification – diversification.
The best long-term portfolio is one that is diversified across asset classes such as stocks, bonds, cash and property as well as being spread geographically, not being solely reliant on one economy such as the UK or US.
Start investing early if you can.
Compound interest can have an incredible effect on an investment portfolio.
Think twice before putting your money in cash. With low interest rates likely to stay with us for a long time, the eroding effect of inflation cannot be overstated.
Invest for the long term and stay invested.
Trying to time the markets is really only done by luck; missing the best up-days can be as bad as enduring the worst down-days.
Always take professional financial advice.
Emotions can play a key part in an investor’s decision making and a rash decision could have a negative impact on your portfolio. An adviser will review your portfolios and guide you through the investment cycles.
Please remain safe with your health and your wealth and contact us if you want to have a review of your portfolio, or would like to look into the opportunities ahead.
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San Pedro Del Pinatar
Our office suite is easy to find on the main N332 through road of San Pedro del Pinatar with easy parking.
If you want more information or wish to make an appointment to discuss your own situation, please email
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Blacktower Financial Management (International) Limited is licensed by the Gibraltar Financial Services Commission. Licence 00805B and is registered with both the DGS and CNMV in Spain.
Blacktower Financial Management Limited is authorised and regulated by the Financial Conduct Authority in the UK.