Some good questions:
- Is it a good time to invest?
- Now the markets seem to have stabilised a little, should I cash everything in, or sell to cash?
- Should I continue to sit tight and ride out the storm?
Rather than answer these questions individually, the following points will make reference to each in the context of the current situation.
Global stock markets have been suffering amid the coronavirus crisis, yet while a volatile market makes investors nervous, this could present an opportunity for those who continue to stay focused on their long-term goals. Of course no-one can be certain that there won’t be further falls and indeed there may well be, but history shows that over the long term, markets will recover.
Hold Your Nerve
If one can look beyond the current volatility, you could argue that now may be a good time to invest.
The price of investments is influenced by supply and demand. For those in the market, the temptation may be to cash in rather than endure more falls. But while this is a natural inclination, doing so only serves to crystalise losses.
Meanwhile, sell offs provide an opportunity for others who are willing to hold their nerve and buy into the market. When the market falls, you may buy shares in businesses at cheaper valuations, and the sooner you start investing, the sooner you have time on your side to produce long-term returns. The key remains having a long term view, trying to make a ‘fast buck’ in volatile markets (or any market) is high risk and not a strategy I recommend.
Time in the market
As the old investment adage goes, ‘it’s about time in the market – not timing the market’. That means leaving your money invested for at least five years, and ideally longer. The longer you invest, the greater your potential for making profits. So, it doesn’t typically pay to hold off on an investment decision if you have time on your side. It is impossible to know when the bottom of a market cycle will be reached and there are many factors that will impact this. There may also be further short- term pain. However, trying to time the market or cashing in (when portfolio values are down) risks missing out on some of the market’s best days.
Managing Risk and Volatility
Your returns will be subject to stock market movements, but the strategies we recommend and use reduce volatility by placing money in a broad range of asset classes (such as cash, fixed interest, property, infrastructure, pharmaceuticals, natural resources and precious metals), in different funds and across the globe.
So, no matter where you invest, you know that any losses to one investment could be offset by gains to another, as they will not all react the same way to economic shocks. Over time this reduces the impact of volatile periods and manages the risks and volatility in an investment.
Taking action and moving forward
Periods of extreme uncertainty are undoubtedly unsettling, yet if you have no immediate need for your spare cash and have enough set aside for emergencies and general living, investing for the long-term may provide a focus. At a time of worldwide turmoil, this could give you some sense of control over your long-term financial future. Equally, if you have no immediate spending needs, remaining invested in your current portfolio without cashing in, will enable you to benefit from the eventual recovery. The caveat to this remains taking a long-term view, as the potential for further volatility both positive and negative remains.