Important information - The value of investments can go down as well as up, so you may not get back the amount you originally invest. Tax treatment depends on individual circumstances and all tax rules may change in the future.
There’s been a lot of talk lately of BC and AC, before and after Corona. Enforced isolation has confronted many of us with an unexpected opportunity to reassess things, and for some I suspect that our lives may be a bit different when we get back to ‘normal’.
In other ways, of course, it’s the same old, same old. The last week has seen many of us ensuring that we put aside our annual ISA and SIPP contributions - no change to the tax-year deadlines, of course. On our daily walks, too, especially for those of us lucky enough to live out of town, there’s been a regular reminder that life goes on. No-one’s bothered to tell the new lambs or the spring flowers that there’s a ‘war’ on.
This is the rather strange backdrop to our quarterly Investment Outlook, which we launch as usual today with an online question and answer session. As ever, Emma-Lou puts our investors’ questions to me. You can watch the webcast here.
I say ‘as usual’ but it has been anything but, of course. My preliminary interviews with Fidelity analysts and portfolio managers were conducted remotely and our webcast was a technical experiment too. For the first time, we did a Zoom interview, linking Emma-Lou, me and our studio colleagues in our respective homes. We think it’s come out pretty well. I hope you do too.
In order not to overload the video system, given the increasing popularity of the Outlook webcast, we decided to take questions in advance for this one. The first thing, I’d like to say is a big thank you to the many people who took the trouble to ask questions - I was overwhelmed by the number, and quality, of those questions (if not wholly surprised that there’s plenty on people’s minds right now!).
One of the key themes that emerged for me was the calm way in which most investors seem to be tackling the current market volatility. The prevailing view seems to be that this is a one-off hit to the global economy that will have a knock-on impact on the value of investments in the short-term but should blow over in due course.
This feels right to me. I mentioned during the webcast some great advice from our former colleague Anthony Bolton, who used to say ‘don’t become more bearish as the market falls’. He meant that corrections create opportunities and contrarian investors should use them as a prompt to get more interested in the market not less so.
Interestingly, this sensible response seems to have been reflected in most investors’ desire to continue taking advantage of the generous ISA and SIPP allowances as the tax-year has drawn to a close. The tax-year-end/new-year-early-bird investment season is still underway, but it looks like investors are seeing the silver lining rather than the cloud right now.
One of the questions which jumped out at me asked whether ‘sitting tight and doing nothing’ was the best policy at the moment. Absolutely. We always say that time in the market is better than timing the market for that reason. Seeing the turmoil out, waiting for the recovery that historically has always arrived in due course, is a far better approach than trying to catch the bottom or, worse, jumping in and out to try and benefit from short-term ups and downs.
I have been struck by the varying approaches investors are taking to managing the market turmoil. There are plenty of ways to invest - funds, shares, ETFs - all of which are easily accessed on the Fidelity investment platform today. Individual shares have, for the first time that I can remember, started to appear in the most transacted investments lists as our share-dealing service become more popular.
One option that investors may want to explore is investment trusts. These specialist funds have one distinct advantage over other investments that has been highlighted by the growing concerns about the ability of companies to pay dividends to shareholders this year. Investment trusts are able to hold back a proportion of the dividend income they receive from their underlying investments in good years to ensure they can pay a steadily rising dividend income themselves through the market cycle. This is particularly valuable at times like these when dividends are under pressure.
I was asked at the end of our webcast what I felt were the three most important things I would say to anxious investors. The first was the line from Anthony Bolton about not succumbing to the temptation to move into safety during periods of volatility. The other two will be familiar to regular readers of these pages but are important nonetheless.
First, I recommend trying to smooth your investment journey by dripping money into the market over time to benefit from so-called cost-averaging. Topping up your holdings regularly means you can buy more units when prices are weak and so end up with bigger and more valuable portfolios in the end and a less choppy ride along the way.
Second, I can’t stress too much the importance of diversification. Different assets and geographical regions will respond differently to the same circumstances. Ahead of time, it is impossible to know which will be the winners and which the losers. Putting your eggs in a variety of baskets is a cliché but valuable advice for investors.
So, today’s markets really are both different and the same as they have ever been. The environment is always changing but the principles of investment persist. I hope you enjoy the latest Investment Outlook and good luck with your investments.
Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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