We’ve had a number of calls over the last week, from worried investors who are seeing the value of your pension and/or investment funds taking quite a battering as a result of the market downturn caused predominately by the COVID-19 virus. 

These concerns are very understandable and to be expected. We feel your pain and indeed share it with our own funds invested in the same way. We want to give you a few thoughts on why we believe the best approach is to sit tight and to stick to the plan.

We’ve seen similar situations before

Remembering the crash of 2009, people felt markets would never recover. The bottom of the market came on 6th March 2009, when the S&P 500 sat at 666 points. Roll forward ten years then to 6th March 2019, and the market stood at 2,792 points, an increase of over 310%.

Now we can’t promise this will happen again, but history tells us that the markets increase on 4 days for every single day that they suffer a loss. The market actually declines within each calendar year by an average of 15.3%, yet overall the market has delivered a positive return 78% of the time since 1982 (in 30 out of 38 years).

The key is time in the market, not market timing

Some people have asked should they move to cash… We don’t have a crystal ball as to where markets will go, but have seen that trying to time markets is folly. What inevitably happens is that people exit markets when they are cheap (after they have fallen), and then as they rebound again, investors go back in too late when the market is expensive. How do you know when is the right time to go back in? The chart below shows the progress of markets since 1982. Time in the market is the key to success.

So this decline is normal?

Each of these shocks in their own right are worrying. This decline though, while uncomfortable, is normal. Take a look at the graph below that shows the performance of the S&P500 index over the last 5 years as at yesterday, with the correction for COVID-19 included. These corrections are perfectly normal market events – markets go up and down. This is just one such event.

What do savvy investors say?

The truth of the matter is that in the fullness of time, fund managers will reflect on the past week as a buying opportunity, as opposed to getting out of markets. Stocks are cheaper today than they were a week ago. 

So what should be done next?

Sit tight and follow the plan. You are investing for a medium to long time and this is simply one event in the market. This should not throw your plan off course. However if you would like some further reassurance, please feel free to call us at Foresthill, we are always pleased to chat through any concerns you might have. 

In the meantime, stay healthy.

Brian & all the team at Foresthill Financial Planning