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If you have picked up a newspaper, switched on the TV or even looked at your phone in the last month, you will have heard of Coronavirus. As with any public health concern, there is a great deal of scaremongering mixed in with the genuine facts.
While many people are understandably concerned about the impact on their health, their family and the provision of medical services, we cannot escape the impact that world events have on financial markets.
So what is Coronavirus, how will it affect your investments, and what should you do?
What is Coronavirus?
While we do not claim to be medical experts, the basic facts are:
- Coronavirus, or COVID-19, is a respiratory illness which is believed to have originated in China.
- The symptoms are similar to many other illnesses, such as colds and flu.
- As the illness is a virus, there is no treatment, only medications to relieve the symptoms. As yet, no vaccine is available.
- Most people who catch the virus will not be seriously ill. Elderly people, babies and those with compromised immune symptoms are most at risk.
- The illness is extremely contagious. NHS advice is to stay at home if you think you may be affected, as this helps to stop the virus from spreading.
- The disease is not thought to be as serious as previous outbreaks such as SARS, swine flu or bird flu. However, as the symptoms can be mild, and some people may have the disease without realising, it may prove more difficult to contain.
There is no reason to panic about the possibility of catching Coronavirus, although sensible precautious should be taken.
What is the Financial Impact?
It is far too early to determine if the outbreak has had a genuine economic impact, for example through lost working hours and demands on healthcare services. Some companies may even profit from a health scare, as people stock up on over-the counter medications and non-perishable food items.
While there is no doubt that Coronavirus has impacted share prices, this is mostly down to investor behaviour. One investor becomes concerned about the impact of the virus and sells their shares. This results in a small drop in the share price, which then leads other investors to become worried and possibly sell their shares. As more money is removed from the market, share prices fall across the board like dominoes.
This can be worrying, particularly if you are approaching retirement, or relying on your investments to support your lifestyle. But we have the benefit of hindsight, and can say with confidence that if the past is any indicator, the markets should bounce back fairly quickly.
What Can We Learn From the Past?
If you have held investments over the last 20 years, there will have been some points at which you were very nervous.
It is now over a decade since the sub-prime mortgage crisis, collapse of Lehman Brothers and the subsequent recession which had an impact around the world. Many are still feeling the effects, having suffered job losses, home repossessions and ten years of austerity.
But the markets march on, and as you can see from the chart below, the financial crisis (and various other major world events) have barely warranted a blip on an otherwise upward trajectory. There is no reason to think that Coronavirus will be any different.
Investor sentiment causes the markets to rise and fall, but ultimately, a sound investment strategy, held for the long term, is unlikely to fail.
FTSE World Index
What Should I Do?
Much of the activity in the market is driven by fear or greed, causing investors to buy and sell at the wrong times. The best strategy is to stick with the plan and weather the storm. Many investors who switched to cash or took a lower risk approach in the midst of global events, are finding that they are now worse off than if they had simply ignored the noise of the financial press.
The most successful investment strategy is the one you stick with, providing it is well-planned in the first place. A sound investment plan:
- Holds a wide range of assets from different asset classes, world regions and industry sectors;
- Is aligned with your tolerance, requirement and capacity for risk;
- Has costs under control and;
- Doesn’t react unnecessarily to world news.
Whether you have a few hundred in an index-tracking fund, or a multi-million pound managed portfolio, keep the points above in mind. Tuning out the financial press will become much easier.
Please don’t hesitate to contact a member of the team if you would like to find out more about investing.