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.
In a bid to see what everyone else is doing during the lockdown I got sucked down the YouTube rabbit hole last night. I found myself watching an antiques enthusiast restore a rusty old Tonka truck to its former, bright yellow glory. It looked as good as new and got me thinking about some of the same trucks taking on a bit of rust in my portfolio lately.
The funds I have held pretty much since I began investing, which I got used to being perennial outperformers, have suffered just like everything else this year. The shine has been taken off somewhat among the indiscriminate selling but that’s more of a reflection of me getting too used to a broadly rising market, it’s not the funds’ fault.
If anything, a lot of fund managers make it well known that there will be environments in which their strategies won’t do well, even when there isn’t a global pandemic. Terry Smith, who heads up the Fundsmith Equity Fund, uses the Tour de France as an example - no-one has ever won every stage on the tour because different sections require different tactics and skills. He is very open about fund management being the same.
The trick, of course, is to have a team with all those necessary abilities, ready to rise to the occasion when they are needed. The years since the financial crisis might have suggested only certain types of assets are worth holding but if the last month has shown us anything it’s that we can’t hitch our cart to just one horse.
What we have to accept is that, while they are waiting for their time in the sun, some assets in your portfolio won’t perform as well as others. This isn’t to let some managers off the hook but there are periods when their worth is in their auxiliary potential, not necessarily their current star power.
Volatility makes work for idle hands
What this isn’t is an opportunity to buy indiscriminately. Flooding your ISA with new funds each year means it’s harder to keep track of them and you run the risk of basically replicating the index by proxy, and paying too much for doing it.
And this is what the Tonka truck really made me realise - sometimes the best investment is one you already hold.
New strategies might pop up and grab our attention, especially when we feel like we need to act in times of market stress. But often, you don’t need to look beyond the building blocks that set up your portfolio in the first place. They might look like they’re past their best but that can be a sign of mental rust setting in - new and novel approaches in choppy waters aren’t always helpful.
Once the current volatility ends, you don’t want to be stuck with a strategy that no longer has a purpose, and scrabbling around for ideas on how to manage the next short-term burst. The important thing is to hold funds set up for the long-term, with a clear process at heart that doesn’t jump on any band wagons. So, if you are thinking of investing right now, take a look at the opportunities in your own portfolio first. You could grab some assets you already like at knock-down prices.
Don’t forget, the tax year ends on Sunday evening so make sure you secure your allowance by adding your money now, even if you aren’t sure which funds to buy yet.
Our investment director Tom Stevenson has a few ideas on funds here, and you can watch him discuss their place in the broader investment landscape during his quarterly Investment Outlook. This will be available from 12pm on Wednesday 8 April. If you would like to ask a question to Tom in advance you can do so here.
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Important information: 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.