One of the consequences of the coronavirus pandemic is a global economic slowdown, with consequential investment market reaction.
Between 17th January and 23rd March (peak to trough), the FTSE 100 index of leading UK company shares fell by 2,680.67 points or 35%.
The value of this index has improved since, closing yesterday at 5,901.21 points, up by 18.1% from its trough.
Whenever markets fall sharply in value, the media seems to revel in the pain. We see headlines proclaiming the billions of pounds wiped off the value of the stock market.
What we rarely see, when the recovery takes place, are headlines celebrating the billions being wiped back on.
On the first working day of each month, we review the performance of our model investment portfolios at Informed Choice.
These model portfolios are the starting point for the personal recommendations we make to our clients, and a useful way to monitor portfolio performance and volatility.
With weeks of negative headlines about the global economy and markets, the performance figures we saw today should have looked pretty grim, right?
Instead, the numbers paint a different picture; they demonstrate the experience of our clients who benefit from a sensible, well-diversified portfolio, invested for the long-term.
Our cautious, moderate and aggressive model portfolios returned +2.01%, -0.83% & -4.73% respectively over one year.
Over the same one year period, our peers (as measured by the Adviser Fund Index – AFI) are -3.73%, -4.93% and -5.76% respectively. The FTSE 100 index is down by 20.01% in that time.
What I’m trying to get across is this; market returns are not necessarily what’s happened in your ISA or pension portfolio.
The usual caveats apply here. Past performance is not necessarily a reliable indicator of future returns. The value of your investments can go down as well as up.
It’s also worth noting that individual investor experience will differ from these figures, by virtue of timing, taxation and other technical factors.
But, as a broad measure of what our clients have experienced in their investment portfolios over the past year, it’s a fairly good indication.
There are a few things to consider here.
Firstly, the power of diversification. When you invest in a diversified basket of mainstream asset classes, you should expect a smoother ride than investing in a more concentrated portfolio.
When one mainstream asset class goes down in value, the goal with diversification is for the negative correlation between asset classes to balance things out a little.
Secondly, the importance of keeping things simple.
The portfolios we recommend to our clients are unashamedly boring. They’re dull. They are to the world of investing what vanilla is to ice cream flavours.
We never attempt to be clever, timing the markets or pursuing potential returns from unconventional investment types.
Instead, we construct and manage portfolios based on the carefully calculated capital market assumptions provided by our partners at Dynamic Planner, with asset classes populated by the funds we select based on our in-house research.
Watching less news is one antidote to feelings of anxiety during the current crisis.
If investing headlines are a cause of concern, look away for now, and consider instead what is taking place within your portfolio.
