In recent weeks, we’ve found ourselves adjusting to a different way of living. As the UK lockdown continues and schools and businesses remain shut, you might be self-isolating, working from home, or getting to grips with the concept of ‘furlough’.
The key message – stay at home, protect the NHS, save lives – continues to dominate our daily activity and for many of us that means long spells at home, with time to reflect on the things that are important to us.
Along with family, health, and security, it’s natural that money worries might rear their head too. The short-term impact on the stock market has been well documented, as has the expected hit to the economy of up to 35% of GDP.
But what does this mean for your finances and your long-term goals? And how can Globe IFA help alleviate any fears you have?
Over 200 years of experience
Between them, our advisers here at Globe IFA have 227 years of financial services experience. And that means that we’ve seen all manner of market volatility during our time in the profession.
The nature of the current crisis is unique. But world events, even in recent times, have seen similar drops in the stock market. From international trade wars to national elections and Brexit, short-term market volatility is to be expected and accepted.
Investment is a long-term strategy and one of the key roles of a financial adviser is to remind you of this. We can guide you through tough times, using our knowledge of the markets to help you avoid the pitfalls and mistakes that investors can often make.
Mostly, we can reassure you. By working with us, you can be assured that you have responsible, knowledgeable professionals acting on your behalf. Professionals that have been through this all before and know that the dawn will come.
We can prevent you from panicking, teach you to ignore the noise and help you concentrate on your long-term goals.
Don’t panic!
As we’ve already noted, investment is a long-term strategy. Short-term volatility, on the other hand, is exactly that: a short sharp shock.
In 2008, the financial crisis was described as a global financial earthquake. Its effects were certainly far-reaching but viewed in the context of market performance over the long term, the crisis becomes one momentary trough amongst many.
Here’s the FTSE 100 Index since 1984:
We can also see a representation of that general upward trend in this graph from Vanguard.
It charts the returns of various investments between December 31, 1990, and December 21, 2019. The dip experienced during the financial crisis can be clearly seen between 2008 and 2009, highlighted in grey.
As we can see, whilst there are occasional dips, the general overall trend is an upwards one. A £10,000 investment in US equities at the end of 1990, for example, was worth £210,250 by the end of 2019.
Ignore the noise
When we talk about ‘noise’ in the context of stock markets and long-term investments, we’re rarely talking about something as serious as a global pandemic. The nature of the current crisis might make emotional knee-jerk reactions more understandable, but it’s as important as ever that these are avoided.
The stock market’s natural trend is an upward one. According to online investment provider IG, the compound annual return of the FTSE 100 over the last 25 years was 6.4% with dividends reinvested. This equates to a total return of 375%.
It is therefore vital that you let the market do the bulk of the heavy lifting for you.
Your long-term goals
The most important thing to remember is that if your long-term goals haven’t changed, then your investment strategy needn’t either.
Your strategy is designed to provide results in the long term and will have factored in periods of short-term volatility. But that means avoiding knee-jerk reactions and remaining invested.
This graph highlights the difference in the hypothetical growth of an investment in the US S&P 500 Index between January 1, 1980, and December 31, 2018. It shows the impact of pulling your money out, even for a short time.
Missing the five best return-days over the entire length of the initial $10,000 investment could reduce returns by $232,550. Missing the best 50 days would see you miss out on $602,203 of potential growth.
The hypothetical example includes dividend reinvestment but not the impact of taxes. ‘Best days’ were determined by using the one-day total returns for the index and ranking them from highest to lowest.
Source: Fidelity
Before succumbing to emotional reactions, ask yourself these three questions:
- Have my long-term goals changed?
- Has my attitude to risk changed?
- Do I need my money in the short term?
If the answer to these questions is no, then be reassured that your money is in the right place.
In the same way that you wouldn’t immediately sell your house if house prices dropped, nor should you compromise the future growth of your investments.
Get in touch
At Globe IFA we understand that we’re living through unprecedented times and that brings its own set of worries and concerns.
Be assured that here at Globe our professional financial advisers, with their two and half centuries of combined experience, are ideally placed to guide through the current difficulties. The nature of this crisis might be different from anything we’ve previously experienced, but its impact on stock markets is anything but new.
Although past performance is no guarantee of future success, when the dawn arrives and the coronavirus pandemic is beaten, past evidence firmly suggests that the stock market will recover and continue in its generally upward trend.
If you’d like to discuss your long-term financial plan, get in touch. Please email hello@globeifa.co.uk or call 020 8891 0711.
