Investing in turbulent times


17-04-2020
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One of the challenging questions being asked by our clients has been “what should I be doing with my investments in these turbulent markets?”. One of Martin-Redman Partners' Independent Financial Advisers, Sarah Austin, wrote an article about this not too long ago which is paraphrased here.

Benjamin Sear, Managing Director at Martin-Redman Partners, writes:

I hope you had a wonderful Easter weekend. In Suffolk the weather was set fair, the sun shone and we spent most of the day outside pottering in the garden. The poor dog ended up having two baths, one with a haircut, the other after she stuck her head into a dishwasher as it was being loaded. The lawns got cut and Mrs Sear started in her journey to Gardeners World prowess by planting a variety of vegetables into the garden and taking over the conservatory as a potting shed. Sadly I am losing the space where I can socially isolate from the kids but at least for now the garage remains my domain.

One of the challenging questions being asked by our clients has been “what should I be doing with my investments in these turbulent markets?”. Thankfully one of our Independent Financial Advisers Sarah Austin wrote an article about this not too long ago which I have tried to paraphrase here.

The Martin-Redman Partners view has always been that time in the markets is the best way to generate positive returns over a typical long-term investment such as a pension or ISA. This means staying invested in the market and having the confidence to ride out the peaks and troughs of economic cycles.

We are all human and it is only natural to be concerned when markets fall, we keenly feel the impact of those drops as a threat to our own financial security. This is something behavioural economists call ‘loss aversion’.

The risk for us as investors is that when we see the value of our plans falling, we consider taking our money out and reinvesting it later on when we hope markets have stopped falling, in other words we want to try to time or guess the market. This is nearly impossible to do, there are very few investors who get these calls right, time after time as there are so many difference elements working with and against each other.

The problem with the above approach is that if you sell a fund when it has lost money and is down, you are changing that paper loss into an actual monetary loss. Your money is then out of the market and you could miss out on future gains when the markets turn around and show recovery – otherwise known as a ‘lost opportunity cost’.

To help capture this point, if you had invested £1,000 into the FTSE All Share Index from 31.12.2004 to 31.12.2019 and had remained invested fully over that time frame you would have seen an average annualised return of 7.6%.

However, if you had tried to guess or time the markets and missed the days with the highest ten best days of recovery you would have reduced your annualised return to 3.3%, if you had missed the highest 30 days of recovery that would have fallen to -1.3% and if it had missed the 40 highest days of recovery you would be down by -3.2% as an averaged annualised return.

To read Sarah’s original article in full please click here https://martin-redmanpartners.co.uk/knowledge-centre/18/3/2020/what-should-i-do-with-my-investments-when-markets-are-falling

If you want to talk to an Adviser about your current situation, to review your investments or take independent financial advice please either drop us an email or call the team on 01223 792 196.

The Martin-Redman Partners team are regularly posting commentary and viewpoints to our website https://martin-redmanpartners.co.uk/knowledge-centre I hope it helps, all feedback is appreciated and we are here to listen, to talk and engage with you.

We wish the best of health to you and your families.

Kind Regards

Benjamin Sear
 

 

About Martin-Redman Partners  

We are a team of experienced Independent Financial Advisers (IFAs) who can advise on your personal or business financial arrangements. We have been building trusted relationships with clients for many years by articulating clear and tailored recommendations in areas ranging from investments to retirement planning, to complex estate planning advice.  

We offer expert independent financial advice throughout Cambridgeshire, Leicestershire, Suffolk, East Anglia and the South East.  Many of our clients are within, or are in the surrounding areas of Cambridge, Grantham, Stamford, Bury St Edmunds, Frinton on Sea, Ely, Peterborough, Huntingdon, Cambourne, Newmarket, Soham and Oundle.

The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.

 

We provide independent financial advice on investments, pensions, inheritance tax planning and protection. We work with private individuals, businesses and professional introducers, such as accountants and solicitors, to ensure our clients financial advice needs are met.

Martin-Redman Partners