April 7th, 2020 / Insight posted in Articles

Moore Kingston Smith Financial Advisers: buy, sell or stick?

As we all adjust to life under the new restrictions, we have seen elements of human nature at its very best with the large number of volunteers supporting the great work and dedication of all of our key workers, from the NHS, to all those working around the clock to keep the supermarkets feeding the nation.

Financial markets are not excluded from the influence of human nature, animal spirits have been helping drive the swings we have recently seen across the globe. Markets have moved through various psychological stages: denial, fear and panic and these, as history shows, will ultimately make way for hope, relief and optimism. While the economic impact of the pandemic and world leaders’ responses gradually filter through, what should investors do during times of market stress? What has happened in previous market shocks and what lessons can we learn?

A common reaction is, ‘should I sell my investments following the recent market correction?’. Historically, strong returns often follow a fall in the markets. If you sell and are out of the market on the best days in market’s recovery, it can significantly reduce the returns on your investment portfolio. The chart below, courtesy of Fidelity International, illustrates the historic effect of missing the best days of a recovery:

On the flipside, low market prices may be an opportunity for longer-term investors, with the risk appetite to withstand the uncertainties over the coming months. We have no crystal ball to project when the markets will return to growth, but our investment philosophy is founded on the principle that time in the market trumps market timing.

The lockdown means that your supermarket shopping bills are likely to be higher, but overall most of us are seeing a reduction in total monthly expenditure. If you are drawing income from your investments, it may be a good time to consider reducing this to ease the pressure on investment assets and avoid capital erosion.

Another area to review is your cash positions. Generally we recommend holding at least 3 to 12 months expenditure in cash or savings accounts that provide ready access. With the financial pressures being placed on businesses, we are likely to see an increased number of redundancies and staff being placed on furlough for a period of time, which was unthinkable a number of months ago. You should consider spreading cash deposits between different banks to keep within the Financial Services Compensation Scheme (FCSC) limit of £85,000 per person per banking license. National Savings (NS&I) are another alternative and are backed by the Treasury. Premium Bonds, for example, offer tax-free cash returns for up to £50,000 per person.

Your wellbeing and that of your family’s is of the utmost importance to us, so please let us know if there is anything we can do to help. We look forward to being able to meet with you face-to-face in happier times, but in the meantime we are available to have a chat over the telephone or via a video call. Please feel very welcome to get in touch.

We want to ensure that we keep in contact with you and I will be updating you next week with the new tax year’s financial planning opportunities for you to consider over the coming months.

This email is not offered as, and does not constitute, financial advice. You should not act or rely on any information contained in this communication without first seeking advice from a professional. Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise.