Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

The past few days have been a great illustration of the dangers of trying to time the markets. Volatility is back with a vengeance and investors risk being caught on the wrong side of some dramatic swings in share prices if they attempt to second guess the next move.

Last Thursday’s 6% fall in the S&P 500 index brought a remarkable two-month rally to an abrupt close. Friday saw a partial recovery, but shares were on a downward path again on Monday before an equally dramatic rally today. What’s going on?

The ups and downs in the markets this week are a reflection of the unresolved tug of war between two powerful forces.

On the one hand, the news flow is terrible - plunging economic activity, job losses, and worrying signs that second and third waves of infections might knock the return to normality off course.

On the other hand, central banks and governments are determined to stay ahead of the game with massive fiscal and monetary stimulus. The markets are struggling to understand who will win this tug of war.

There have been some striking examples of poor economic news in the past few days. BP’s announcement of 10,000 job losses set the scene for today’s labour market data showing a sharp fall in employment despite the government’s furlough scheme. European trade has slumped with big falls in both exports and imports.

The medical news is no better, with a resurgence of infections in Beijing after several weeks of no new cases. In the US, too, the easing of lockdown appears to have triggered a revival of Covid-19 in Texas and Florida.

So, the pressure is on the authorities to double down on earlier massive stimulus. And they are stepping up to the plate on both sides of the Atlantic.

In the US, Fed chair Jay Powell may have triggered last week’s big sell-off with an unvarnished assessment of America’ economic outlook. But he has redeemed himself this week with the promise to use central bank funds to buy corporate bonds to reduce borrowing costs for companies. This extends the Fed’s earlier purchases of Exchange Traded Funds (ETFs) tracking bond indices.

Over here, a senior ECB official confirmed that Europe’s central bank is considering buying so-called ‘fallen angel’ bonds, issued by companies which have recently lost their investment-grade rating.

It seems that big new fiscal stimulus is also on the cards, too, with Bloomberg reporting that the US government has lined up a $1trn programme of infrastructure spending. Building roads, bridges and digital networks is an echo of Franklin D Roosevelt’s New Deal that helped lift the US out of its Great Depression in the 1930s.

This stand-off between good and bad news for the markets creates a challenging environment for investors. On the one hand, the relentless flow of bad headlines makes it hard to justify share prices, which in some cases have returned to pre-crisis levels. On the other, it rarely pays to bet against the Fed.

Throughout this Covid-19 crisis, it has benefited investors to stay calm and ride out the waves of volatility that have flared up from time to time. It is simply impossible to know which way the market will head next, let alone time the turning points.

Far better, then, to focus on longer-term goals and to ensure that you protect your portfolio through diversification and a steady savings routine. Put your eggs in a variety of baskets and benefit from the ups and downs by dripping your money into the market through the cycle.

Investors looking to create or add to a diversified portfolio will find a wide range of high-quality funds in our Select 50 best-buy list. These are the funds, categorised by region and asset class, that our fund-selection experts really rate.

We believe the Select 50 list is unique among its peers in having a clear two-part fund-selection process. First and foremost, it is an investment-led list. To get on the short-list for entry into the Select 50 a fund must go through an extensive due diligence process in which our experts analyse a fund’s track record, processes and the quality of its management.

Only then do we look at other customer benefits, such as discounted charges. These ensure that our list includes high-quality funds at the best possible price. But the key point to note is that no-one can buy their way onto our list. If our investment experts don’t rate the fund highly, it won’t get near the list.

We review the list twice a year to make sure that the funds we give the Select 50 stamp of approval are continuing to deliver. New funds can come onto the list in January and July but a fund that falls short of our high standards can be dropped at any point.

Read more about the Select 50 and browse the current list.

Five year performance

(%) As at 15 June 2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
S&P 500 10.5 32.5 11.3 11.0 8.1

Past performance is not a reliable indicator of future returns

Source: FE, as at 15.6.20, total returns in GBP terms

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. Select 50 is not a personal recommendation to buy or sell a fund. 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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