Do you remember where you were 5 years ago? Of course you do, as you were in the same place as everyone in the country and most of the world – at home!
I’ll never forget the Prime Minister’s address to the nation, as Boris Johnson appeared in an emergency broadcast to announce that the entire country was to go into a national lockdown to control the spread of the COVID-19 virus.
– Schools were closed
– Travel was severely limited
– Businesses were forced to close or work from home.
Fear and uncertainty gripped the investment markets as everyone tried to guess what would happen to the economy, as well as fearing for their own family’s health and well-being.
Investment markets hate uncertainty, and as a result:
- The S&P 500 fell 34% in a couple of weeks.
- This was the fastest descent into a bear market (a 20% decline from recent highs) ever recorded, surpassing previous crises like the Wall Street Crash of 1929 and the Global Banking Crisis of 2008.
- The market suffered a single-day decline of almost 13% on March 16th.
It was brutal.
In that world of uncertainty, many investors sold out of their portfolios after the declines, seeking to avoid even greater losses.
Some well-known financial advice firms went public with their recommendations to sell down equities and move to ‘safe haven’ assets such as bonds and cash.
However, by August 2020 (just five months later), the S&P 500 had fully recovered and hit a new all-time high on 18th August – this was the fastest ever bear market recovery in history.
The S&P 500 went on to rise by 144% in the subsequent 60 months, rewarding patient and steadfast investors.
However, sadly, many investors missed most of that growth as they sat in ‘low risk’ assets.
One of the problems of selling out of an investment portfolio is that you have to get your timing right twice – once when you sell and again when you go back into the markets.
The chances of getting both decisions right are so small that they are irrelevant and certainly not worth attempting.
Although the COVID experience was extreme, stock market volatility is a feature, not a bug, and should be expected. It’s the price we all pay to benefit from long-term returns ahead of inflation and, therefore, the most reliable solution to the challenge of inflation and increasing lifestyle costs.
I’m pleased to confirm that none of our clients sold their portfolios during those dark days, although we certainly had to provide some advice and support at times.
I hope we’ll never experience a pandemic again, but I’m confident that we will experience volatile investment markets multiple times in the years ahead.
At these times, just remember that we got through the fastest market decline in history and lived to enjoy the quickest recovery.
When it does happen, always remember ‘This Too Shall Pass’ – and call us if you need to talk through any concerns.
Alan Smith
CEO
