Should I be making investment changes right now?
Sometimes it can be hard to do nothing, mainly when so much seems to be changing – especially when it comes to making investment changes.
Our instinct steers us towards “fight or flight”, and at times like this, it can be hard to think slowly and to make considered judgements.
Right now, it’s almost certainly a wrong time to make changes to your investment portfolio. There are a few reasons for this:
We continue to experience wide fluctuations in share prices – not only from one day to the next but also during the day.
For example, on 23rd March, the FTSE 100 index increased in value by 9%; had you been changing your investments on that day, you could have lost out on that 9% rise forever.
The current extent of the price fluctuations is extraordinary – throughout 2019, which was a far more ordinary year for volatility, the biggest daily move of the FTSE 100 was less than 3.5%.
And this extraordinary volatility hasn’t just affected shares. In essence, the changes in the prices of government bonds and corporate bonds have been unusually sudden too (the FTSE Gilts All Stock Index increased in value by nearly 5% on 20th March).
The main driver of investment returns always has been the combination of asset classes which you hold.
No new asset classes have been uncovered in 2020, so the most important decision you will make is how you split your portfolio between shares, fixed interest stock, property and cash.
At this stage, there should be no real reason to be making different choices to those which you have made before, mainly as your view of risk is a personality trait, which shouldn’t change from day to day (unlike your mood, which, according to Mrs W, can vary from one minute to the next!).
Your funds are still being managed
Our approach to investment management is to make use of investment funds, rather than picking individual stocks and shares for our clients, and this is the most common approach used in the UK.
One of the benefits of this approach is that the company which manages the fund will be making changes to the stocks that the fund holds; depending on the type of fund you hold, these changes might be decided by an individual, a team (probably working from home now!), or, increasingly, by a computer which follows a process (this is what happens in an index tracking fund).
So, if you were comfortable with the funds you held before asset prices fell, there really should be very little reason to make an immediate change.
As the dust settles and the future becomes more evident, it might be advisable to make some changes to your investments, but this should always start by reminding yourself (or reviewing) what you would like your investments to do for you.
It may be that you will need your investments to do something different for you in the future (e.g. you may want to provide financial support for your family) and this sort of decision will usually need some professional advice and time for reflection, before action.
It may be wise to make a change the asset allocation and stock selection in your portfolio, as the investment environment becomes easier to understand in the future.
Still, it’s worth remembering that an appropriate combination of shares, property, fixed interest stock and cash has served investors well – through the good times and the bad times.