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. Withdrawals from a pension product will not be possible until you reach age 55.
The popular image of a stock market crisis is a single crash, out of the blue, leaving shell-shocked traders with their head in their hands. The reality is usually different.
What actually happens is a series of waves, of varying intensity in which investors worry about different things at different times. These periods of fear are punctuated by counter-trends in which markets pause for breath and focus on silver linings.
The Corona-crisis is following this template. We have experienced the initial wave of panic, characterised by lurches in both directions (more down than up) as investors struggle to even comprehend what is going on. This stage reached its peak a couple of weeks ago.
Since then we have enjoyed a period of relative calm following the massive interventions by governments and central banks last week. This phase, too, looks to be running out of steam.
The key driver of these swings in sentiment is the interplay between three different, but related, crises that make up the bigger picture.
First and foremost, there is a medical crisis, the epicentre of which is moving round the world from east to west. Although, we do not know exactly how this will evolve, the experience of Asia and now Europe gives us a pretty good idea of what lies in store for the US. Other known unknowns include what happens in Africa and South America.
The second crisis is an economic one, caused by the extreme and unprecedented measures taken around the world to manage the trajectory of the outbreak. The global economy has never before been voluntarily shut down in this way. The great unknown here is the depth and duration of the economic hit. What is certain is a big downturn; what we don’t know is whether we will benefit from a V, U or L-shaped recovery.
The third crisis has, so far, been prevented - it is the financial one that governments and central banks have sought to defuse by massive, prompt and essentially unlimited fiscal and monetary stimulus. It was fear of this financial crisis that exacerbated the already intense medical and economic fears a fortnight ago to deliver some of the worst days in the stock market since the Great Depression.
Concern focused on the world’s financial plumbing, the seizing up of which caused such damage during the financial crisis 12 years ago. Liquidity, counter-party risk, a break-down in trust - all of the things which terrified us during the credit crunch briefly reared their heads again. Fortunately, some of the lessons of 2008 seem to have been learned.
Where we go from here is unclear. Two of the three crises remain unresolved and the third may yet require further even more radical steps to be taken. But the knock-on effects of each are likely to play out differently for investors.
Financial crises lead to panic in markets. Hopefully, that risk has passed. Economic crises trigger bear markets. That risk still looms. How long and deep the economic crisis becomes depends in large part on how the medical crisis evolves from here.
Meanwhile, investors need to act in real time, with no clear view of where the three crises are heading. They are obliged to weigh up the odds of different outcomes and back those probabilities with their money.
Every quarter, I try to help Fidelity’s personal investing customers navigate those shifting sands via our flagship Investment Outlook publication. In it I look at the big picture and dive down into the main asset classes and geographical regions.
The idea is not to offer investors personal advice - we are not permitted to do that - but to provide some context in which investors can make better informed decisions.
Every three months, we launch the Outlook with a webcast in which I take questions from investors. Next week, at noon on Wednesday 8 April, the next of these will be published. You can throw your own questions into the mix at the Investment Outlook webpage any time before close of play on Monday. I will try to answer as many of these as I can in the webcast.
Before then, on Sunday, the current tax year will come to an end. Please do remember that the generous ISA and SIPP allowances that allow a working couple to shelter up to £120,000 a year from tax (£20,000 ISA contribution each, up to £40,000 in a SIPP) expire at midnight on Sunday. The ISA allowance is a use-it-or-lose-it perk and the SIPP contribution has only limited ability to be carried forward so please do take full advantage before the deadline.
Remember, too, that you do not have to invest any money you contribute immediately. If you wish to drip money into market over a period of time, that would be an entirely sensible approach. The interplay of the three ongoing medical, economic and financial crises is likely to lead to continuing volatility in the months ahead and averaging out your entry points over that period could lead to a smoother ride.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. 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.
On 2 June 2020 - US gains; Europe rallies on stimulus hopes; Asia up
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