Landmark’s view on current market volatility
The coronavirus pandemic has led to significant reductions in equity markets. We wanted to provide our view of the current situation to help clients understand the position and to reassure you of our support during these difficult times.
The purpose of this note is not to bombard you with figures and diagrams as these have been provided by a number of institutions. Needless to say, the recent stock market falls have been some of the most severe, echoing similar falls in 1987, 2000 and during the financial crisis of 2008/9. Since the highs of February, US markets have declined by 35%.
To stay invested or move to cash?
One of our guiding investment principles is to remain invested. This is based on the premise that it is virtually impossible to time the market in terms of entry or exit. In either case, potential gains are often missed and statistical evidence shows us time spent in the market is the most prudent way to achieve long term returns.
Apart from statistical evidence, an individual’s personal financial position must also be considered. If that individual has a diversified portfolio of investments and assets split between cash, bonds and equities, they should have sufficient cash assets to ride out periods of severe market volatility. If this is not the case, then moving to cash has to be considered.
It is easy at times like these to become focused on risk based assets and specifically market movements which are reported every day in the media. It is important to look at your overall situation and this is where financial planning comes into prominence.
At Landmark, we have always managed our client portfolios taking into account their personal circumstances and total asset structure. In most cases, portfolios have been set up with a number of buffers in place such as suitable weightings in cash or strong income streams. It is at times like these this type of planning proves invaluable.
It means that whilst clients’ portfolios may decrease due to heightened market risk (measured in terms of volatility, i.e. price movement), the consequential risk i.e. the risk of being unable to carry on with your current lifestyle, is reduced if appropriate planning has been put into place.
There is no doubt the recent drop in markets has been painful, and continues to be so. We, like everyone else, have no idea where the bottom of the market lies but can probably forecast there is more volatility to come. The history of the stock market since the Second World War has shown an upward trend and, where we have had market crashes and corrections, the market has recovered and moved onto higher highs. Clients have benefitted from being in a position to wait for these recoveries.
Our long term view on markets doesn’t change but these market reminders confirm to us the importance of appropriate financial planning to support an investment/pension portfolio. This is crucial to being able to withstand the current turbulence without having a direct impact on lifestyle.
At Landmark, we are here to support our clients at all times and if you have any questions or comments, please feel free to contact us.
Chartered Financial Planners