First of all, as the UK and many countries around the world tentatively ease their lockdowns, we hope that you and your family are continuing to stay well and benefiting from the initial steps to get back to normal.
The coronavirus pandemic has caused significant volatility in global equity markets and we continue to see larger daily falls and gains than we would normally expect. With this in mind, it is really important that you think twice before taking any action over your pensions and investments.
The FTSE 100 index closed firmly down yesterday (Thursday 20 August 2020) losing 1.6% on the back of a surprise rise in jobless claims in the US, a fall in oil prices and continued fears over the global pandemic.
The Fed’s warning that the US economy could face a “considerable” negative impact over the medium term and the need for fiscal stimulus unsettled markets.
In terms of oil, the US benchmark crude fell 1.12% on the day to US$42.45 a barrel and Brent crude dropped 1.3% to US$44.81.
In what has become a consistent pattern, US equity markets managed to shrug off the concerns as gains in the major tech companies offset the disappointing unemployment data. Apple, Facebook, Netflix, Alphabet and Microsoft all rose at least 2%. Amazon climbed 1.1% and Tesla jumped 6.5% to close above $2,000 for the first time ever. This helped the Nasdaq close up 1.1% while the Dow Jones 30 closed up 0.2%.
Whatever you are invested in, we’d like to remind you about the following key principles.
Stay invested – as you have seen global equity markets fall and the value of your own investments fall as well, it is natural that some of you will be thinking whether you should sell your investments and move to cash or some other “safe haven”. Our strong message to you is stay invested, focus on the investment objective that you set with your Financial Adviser at outset and trust the process. History shows that as night follows day, global equity market recoveries follow global equity market falls and it is damaging to miss out on the recovery days. The following chart shows the performance of the FTSE All Share over the last 20 years, between 31 July 2000 and 31 July 2020, and the impact if you missed the 10 best days. The cost of missing these 10 best days would have been nearly 3.5% a year (Source: Omnis Investments).
Understand your attitude to risk – we know that you will have discussed your Attitude to Risk and your capacity for loss comprehensively with your Financial Adviser. We are delighted that this process appears to have really worked during this extremely short-term volatile period.
If you are a Cautious or Balanced investor, you have been protected from the extreme falls of global equity markets. In fact, if you look at the average of all Cautious funds in the market (using the IA sector – Mixed Investment 20% to 60% Shares), a typical Cautious investment will be, more or less, level over the last 12 months, compared to the FTSE 100 which has fallen by between 12% and 13% (Source: FE Analytics as at close on 20 August 2020).
For Balanced (using the IA sector – Mixed Investment 40% to 85% Shares), a typical Balanced investment will be up over 1% over the last 12 months (Source: FE Analytics as at close on 20 August 2020).
Diversify your investments – if you are invested in Openwork recommended investments in line with your Attitude to Risk like the Openwork Graphene Model Portfolios, Openwork Portfolio of Funds and Prudential PruFunds, your investment is diversifed which means it invests in a wide range of different asset classes.
Different types of investment (asset classes) and regions of the world all perform differently. Diversifying your investment by spreading it across many different asset classes and regions of the world means that, when certain segments aren’t performing as well, others in your portfolio are likely to be doing better and so will help protect the value of your overall investment.
Buying low – when you invest, you are always trying to buy low and sell high. For many, now may be a good time to consider increasing your investment. While trying to time a market bottom is difficult, history tells us that you do not have to wait long, if you invest slightly before the bottom, before your investment is back to its original value. As the chart below shows, investing 5% before the market bottom has, on average, added just 3 days to an investor’s recovery period.
In such unprecedented times, it is important to know that your hard-earned pension savings and other investments are being looked after. The Openwork Investment Committee is monitoring your investment closely. While none of us can stop short-term market falls, we do fully expect global equity markets to recover. We cannot predict timescales but if you do not need your money now, we believe you will be rewarded for staying invested.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
Past performance is not a reliable indicator of future performance and should not be relied upon.