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09 Apr 20
Surviving the Covid 19 Bear Market
“There are moments in horror movies when you might not only cover your eyes but also forget that it is only a film and you will soon be back in the real world” writes John Husselbee, Head of Multi-Asset at Liontrust. On occasions, investors can get the same feeling when watching stock markets.
From 19th February until the time of writing this article in mid-March, we have experienced huge turbulence in global stock markets prompted by the Coronavirus pandemic and the spat between OPEC and Russia over oil production. This included a 10.87% fall in the FTSE 100 – what I call the 10 O’Clock News index – in just one day (12th March).
It is always useful to put dramatic, short-term events into a long-term perspective. Looking as far back as Black Monday in 1987 shows that dramatic falls in markets are both rare and generally not long-lasting.
More recently, following the financial crisis in 2008, the stock market enjoyed its longest bull market in history over 11 years. The falls become mere blips on performance graphs the longer back in history you go.
In most cases, to achieve your financial goals requires you to make investments so that you can grow your savings at a faster rate than inflation. Shares have shown to have a good record of generating such real returns over the long term.
When stock markets tumble, it is a horrible feeling. But as horrible as it might feel at such times, it is important and helpful to remember why you are invested, the benefits of long-term investing and that it is vital not to react with panic nor greed.
Substantial falls can present opportunities to invest. Trying to time the lowest points in stock markets is impossible but drip-feeding money into investments can enable you to take advantage of depressed prices and therefore help you achieve your long-term objectives.
You can also benefit by trying to lessen the impact of significant movements in share prices. We do this by seeking to manage risk and limit losses by diversification in falling markets to enhance long-term returns. The less you lose in down markets, the greater the amount of investments you start with when markets start recovering.
Finally, making a decision in panic to sell after falls in share prices means crystallising losses and potentially missing out on subsequent gains from the economic and market recoveries. This can, we believe, damage your long-term wealth.
Key Risks & Disclaimer
Please remember that past performance is not a guide to future performance and the value of an investment and any income generated from them can fall as well as rise and is not guaranteed, therefore you may not get back the amount originally invested and potentially risk total loss of capital.
This content should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Portfolios mentioned, or a solicitation to purchase securities in any company or investment product.