In my time as a financial professional, I have seen many downturns, some more significant than others. I started work in this world of finance in May 1988 and since then these are the ones that have stuck in my head:
1990 Recession (Personally very painful - anyone with a mortgage at that time will never forget it!)
1997 Asian Banking Crisis (Debt, too much of it)
1998 Collapse of Long-Term Capital Management (Overconfidence)
2000 Dot-com Crash (Some stuff way too expensive)
2008 Banking Crisis (These happen periodically and will again)
2012 Grexit (Should have happened, but didn’t)
2016 Brexit (Should not have happened. Mostly felt in currency so far)
2020 Covid-19 (We could add oil to this and a recession - possibly)
Problems, obstacles, disasters, however we want to call them, they always happen and always will do. They are so difficult to predict in advance. As an investor, you should always expect a significant event every three or four years. Is this Covid-19 significant yet? Will it become more significant? I don’t know.
So, from an investment perspective, what should we do now?
Nothing. For now, we say you should do nothing. Why? We cannot predict the future. We can only tell you what we know today and what happened yesterday. We cannot tell you much about tomorrow, other than it will come. We don’t know tomorrow’s price for anything!
Are you retired, or about to retire?
What we will have done already, is to make sure that if you need an income in retirement, either now or soon, don’t worry. Our portfolios hold short-dated bonds (this is typically money lent to high quality governments). These are the defensive assets and they will now be appreciating in value. While ‘investors look for a safe haven’ as the media likes to describe it, you’ve already got it built in.
During the banking crisis of 08-09 (the biggest event of those listed above, so far), these short-dated bonds enabled our clients to:
1. Draw money in retirement without touching any real assets (shares and property).
2. And when stock markets got very cheap (March 2009), we were able to sell some of these bonds and buy more shares at bargain prices.
Put simply, if you are due to retire in the next few years, or you are already retired; by holding an investment portfolio that contains these short-dated bonds within it as defensive asset; you should be fine. But if you are not sure please give us a call, we welcome it.
Are you saving for the long term?
I think the answer is in the question. Long term, equity markets have delivered great returns. If your investment time horizon is 10, 20, 30 years or more. Don’t worry. All the events I mentioned before end up looking like mere blips when you look backwards. I am 54 now (ouch) and the 1990 recession was horrible at the time, but looking at it now:
If I invested £1,000 in the FTSE All Share in 1988 (when I started work in finance), by the end of 2018 it would be worth £11,882 (30 years on).
If I waited until the 1991 to make the same investment, and thus avoid the market downturn on news of a recession that will occur in the future (market fell 17% in 1990), I would now be sitting on £9,049
Source: Dimensional Fund Advisers Matrix Book 2019
So, keep investing regularly and ignore the short-term noise. Don’t turn yourself into a short-term investor if you have a long-term investment horizon.
But there is one big difference!
All the other falls had nothing to do with your health, or the wellbeing of your family, friends and other loved ones. Follow the Government advice and we hope everyone stays safe and well.
