Record stock market highs were recorded in February, which now seems a long time ago.
A month later, Covid-19 and an oil price war between Russia and members of the Organisation of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, brought about the biggest market downturn since the financial crisis of 2008.
In our language, the bull run ended (upward market movement) and bear markets dominated worldwide (downward trends).
There have been signs of recovery more recently, but whether this will be short-lived or a more prolonged rally, remains to be seen.
The long and winding road
Financial markets do not necessarily need good news to post positive returns – less bad news and signs of stability can be enough.
At Belmayne, we base our portfolios on empirical data that demonstrate there are more positive periods than negative ones. Unfortunately, predicting when the latter might occur or how long they will last is nigh on impossible. This is why we outline the potential pitfalls of market investment at the outset of our work with you.
We diversify across different regions and asset classes, through a mixture of equities and fixed interest assets, to spread the risk and we never claim your portfolio will go up in a straight line, by a set amount. Given time, however, we can prove the rewards are greater than inflation or bank interest rates. You cannot judge returns over a week, a month or even a year, the horizon must be longer.
Hold your nerve
When we set up your portfolio, we discuss your objectives and timeframes, so we can tailor your investments accordingly. This includes projecting a ‘catastrophe situation’ that illustrates the maximum loss is usually within a tolerance you have agreed in your initial risk profile questionnaire.
For most people, your objectives will stay the same year on year and as a result, your investment style should remain in place. As our bull and bear graph shows, we have many decades of evidence that demonstrates the markets will return to normal.
Anxiety increases during a downturn and this is only natural. It can lead some clients to ask us if they should cash out during bear markets and wait to go back in again. This is known as ‘timing the market’ and in my experience, is impossible to predict. Missing out on positive returns in the early stages of recovery can have a hugely negative impact, whilst leaving the market in the first place crystallises your loss. It is far better to stick to your original objectives and stay on course.
What does the future hold?
Negative investment periods are never welcomed, but they have to be expected. In most of my recent discussions with clients, they were fearing greater losses than have actually occurred.
So, what now? Given the unprecedented circumstances we find ourselves in, is impossible to say what will happen. We do know governments around the world have put in place ground-breaking stimulus packages to try and negate the worst impacts of this unique threat.
A bear market rally before a downturn is common through history, before a full recovery takes place. I think we can agree volatility is to be expected for the foreseeable future, but if things will ever return to ‘normal’ and how long will it take, nobody knows.
The world has come through various chaotic periods before and investors were rewarded for staying true to their original objectives. My advice? Sit tight, sustained positive returns will follow.
If you would like to discuss the current market situation in more detail, don’t hesitate to contact me. Telephone (01246) 298181 or email: email@example.com