We wanted to provide a further update on the Coronavirus and how this is impacting on portfolios.
The global stock markets have been incredibly volatile over the past few weeks as investors digest the minute-by-minute updates on the virus and how it is impacting on companies.
In the past 5 working days, we have seen some of the largest ever falls on some stock markets, followed almost immediately by some record breaking gains – volatility reins supreme.
At times like these it is important to remind ourselves of two of the timeless lessons of stock-market investing.
1. You can’t predict the market – trying to do so in the current climate seems even more futile than usual. The virus presents a new and uncharted challenge and it’s path is near impossible to predict. Markets are moving strongly in reaction to each new data point released.
2. If you miss the best few days in the markets, you often permanently damage your long-term returns. Fidelity wrote last year about the impact of missing just the best 10 days in the market out of the past 15 years. You can download and read their previous article on this here.
Given the extreme moves we have seen over the past week, there is a very high chance that at least one (perhaps two or three) day(s) will feature in the ‘best days’ table when we look back 10 years from now and thus, despite the media storm, this period could be one of the most important for your long-term financial success.
We took the opportunity on Monday to re balance portfolios given the significant divergence we have seen between bond and equity markets. Although an over-simplification, in essence this means that we sold bonds which had increased in price (and thus were making up a larger than desired part of the portfolio) and bought equities which had fallen in price.
Given the fairly sizeable recovery in equity markets over the past few days, this move seems to have been well timed and has assisted in the recovery of the portfolios this week.
We will of course continue to monitor the situation carefully over the coming weeks and months and we will write again with any significant updates to the portfolios.
As always, if you have any questions, please do not hesitate to contact a member of the Buckingham Gate team.