The past few weeks have seen heightened market volatility, culminating in a large-scale global correction to equity markets on Monday, 9th March 2020.
The falls are amongst the highest seen since the financial crash of 2008, with fear and panic gripping traders, fund managers and investors across the world.
The immediate cause of this sell-off was the dramatic fall in oil prices overnight as a result of an ongoing dispute between OPEC and Russia oversupply levels in the global oil market. This has to be set against the backdrop of fear for further spread of the coronavirus with escalating fatalities in Italy, Iran, the UK and other countries around the world.
Most investors, including Foresight clients, are exposed to stock market fluctuations through their pensions, ISAs, and other long-term holdings. Seeing headlines like those reported yesterday can feel very unnerving and create a sense of panic or worry.
So, what should investors do?
Firstly, the most important thing is to remain calm, analytical and keep sight of the underlying reasons for investment. If the investment is intended to be long-term then you should remain focused on this and not give in to short-term panic or attempting to trade investments on a day to day basis.
Whenever there is an unexpected shock, markets tend to behave wildly with volatility increase in the short-term before settling down in a clear direction.
In our view, the current situation is no different and we expect volatility to remain heightened over the coming days, weeks or perhaps even months. Once there is clarity over the scale of the impact of both events a picture will emerge, and assets will revert to their underlying true value.
Secondly, it is important to keep with the risk profiles that were agreed at the start of an investment, as they are designed with exactly these scenarios in mind. By carefully assessing clients’ attitude to risk, capacity for loss and other factors that will affect their investment allocation, portfolios are carefully designed to deliver the long-term growth within the volatility constraints that are acceptable for a client portfolio.
In fast-moving volatile markets, it is important to maintain risk levels as well as regularly rebalancing portfolios to ensure they stay within their quoted risk parameters. Portfolio diversification is also of paramount importance. Whilst large losses affecting global equity markets are dominating the headlines, we have also seen a significant rise in bond values as well as safe-haven assets such as gold. Rises in these areas will offset the total losses within a client portfolio and this should be maintained.
Finally, focus on getting professional advice and information from reputable trusted sources. In an era dominated by social media, it is easy to listen to every so-called expert during these highly charged times. Rather than listen to people who have suddenly become overnight experts at trading the financial markets, we urge clients to remain focused on their long-term objectives.
At Foresight, we have a wealth of experience, with senior members of staff having worked through a number of market crashes in the past. We believe that we have the necessary experience to steer client portfolios through these volatile times.
If you have any specific queries in relation to your investment portfolio or would like to review your asset allocation or risk profile, please contact us and we would be delighted to offer you our analysis and talk through the best course of action for you.