There’s a lot of advice being given at the moment that the best way to defeat the coronavirus is to ‘do nothing’ – stay indoors, only venture out for emergencies, don’t meet friends, don’t have others in your home etc.
Now if you’re anything like me, doing nothing doesn’t come easy. It doesn’t ‘feel’ right. I’m used to being busy with work and having an active social life. I also like fixing things and I like to feel I have some control over a situation. Even if I don’t really know what I’m doing, the fact that I’m trying to fix something makes me feel better – temporarily anyway. So, whilst I realise that ‘doing nothing’ is the best thing you can do to avoid contracting the virus, for some people, it’s not necessarily easy.
Coincidentally, you may also remember that, just under 2 months ago, I was giving the same advice to all my clients with your investment and pension portfolio’s when the market crashed – do nothing. I fully understand that this may also have given you the same uncomfortable feeling. The feeling that you (or I as your adviser) SHOULD be doing something. We should be selling funds into cash or analysing where the bottom of this crash is. The ‘feeling’ was the same. The feeling that we should be doing something to take control when the reality was ‘doing nothing’ was the best course of action (you can see my previous blog posts on Trying to Time the Market HERE and How to Survive a Stock market crash HERE)
I’m pleased to say that 99% of you listened to that advice. Most of you simply accepted the crash for what it was and had the attitude that it will come back. A few of you wanted to ‘bail out’ to avoid further losses. One or two wanted to sell your portfolio to stop you from ‘losing everything’.
Thankfully, when we look at the major markets now, we can see that you have all been temporarily rewarded for doing nothing and a small rebound has occurred.
Now I’m not saying the recovery has started and we’re out of the woods. The Government have been incredibly generous during this crisis and, at some point, they will want their money back. We are also at risk of some companies not being able to survive – take the leisure and tourism industry for example. Increased taxation, companies going bust etc can all affect the market adversely in the future. More lockdown phases could also be on the horizon which could reverse the current bounce back.
Ultimately, no-one can predict when the recovery will put us back to the situation we were all in mid-February. However, I do want to focus on the results of ‘doing nothing’ this last 6 weeks.
So, just like the Government are releasing daily figures relating to the effect the lockdown is having on the Coronavirus, I also wanted to share some figures with you to let you know that ‘doing nothing HAS worked with your portfolio’s too.
As you can see below, the chart represents the last 12 weeks of performance for the 3 benchmarks I often use to measure portfolio performance, the AFI Aggressive, Balanced and Cautious sectors. I have also included the FTSE for comparison purposes.
To put this into context, if you were fully invested in the FTSE (which you won’t be as a client of mine as your fund will be more diversified) then you would have experienced a loss of 31.88% from 23rd February to 21st March. However, from 21st March to 28th April there has been a gain of 11.61%.
An aggressive investor that sold their portfolio on 19th March would have experienced a loss of 22.95%. Since then there has been a gain of 9.85%.
For a balanced investor the maximum loss would have been 19.97% on the 19th March and, from that date, they have seen an increase of 8.65%
Finally, a cautious investor would have seen a maximum loss of 16.90%. By ‘doing nothing’ they have benefited from a gain of 6.95% since then.
To put this into context, for every £100,000 you have invested, selling at the end of the March would have meant an aggressive investor would have missed the April gain of £9,850, a balanced investor would have missed the gain of £8,650 and a cautious investor would have missed a gain in April of £6,950.
In conclusion, I suppose the message with investing is a bit like the message of how to defeat the Coronavirus. We can’t always control what happens to us, but we can control how we react to it. By staying indoors and doing nothing, we hope to defeat the virus sooner. By staying invested and doing nothing, you’re getting similair results….so far!
Past performance is no guide to the future.