The month of March 2020 saw a record fall in the UK All Share stockmarket where it fell by -35% from its value at the beginning of the year.
It was a worrying and frantic time for us as financial planners as although we were confident that values would rise again, it was not clear how long it would take and we were concerned to support our clients who were obviously worried about their investments and what was going on generally.
Many of our clients have been with us for years, so had seen it before in previous stockmarket crashes. All clients were pleased to be kept informed by regular weekly updates providing a commentary about what was happening and how portfolios were being managed by our investment partners.
A number of clients saw this as an opportunity and invested more money into their portfolios. This of course has provided an excellent return over the last year as the purchase prices were very low. The client that invested on 23 March has seen returns up 23% for a moderate risk portfolio. Those who are happier with a greater proportion invested in shares saw growth of nearly 33% since then.
When investing, three things are important:
It is almost impossible to time the best point in which to invest. Opportunities such as the crash of 2020 and 2008 come around rarely, but it does take courage to invest then! Investing when markets are high, such as following a period of recovery, may mean that it will take longer to see higher growth rates as the pace of growth tends to slow down after those significant rises.
This factor helps to ensure that investment portfolios are suitable for clients’ objectives. Generally the longer the timescale you have, the less important the initial point of the investment becomes. This is because there is a longer period for any stock market falls in value to be recovered and continue to increase.
Diversification sees the benefit on returns of holding a broad range of investments, sectors and regions. It is so important to capture returns delivered in different ways and at different times to avoid the risk of significant loss compared to having all your eggs in one basket, for example investing entirely in shares within the UK FTSE 100 index.
Not all investments can be made at the most opportune time and you only know this point with the benefit of hindsight of course. However by bearing in mind these three factors and seeking proper advice on how to proceed, a sensible investment strategy may be well placed to deliver positive returns over time.
It is easier to take this approach than wait for the next market crash!
Please note that past performance is not guaranteed and the value of investments can fall as well as rise.