Don’t panic, investment resolutions in the face of adversity

What a year 2020 was.

The opening paragraph of a ‘Tale of Two Cities’ written by Charles Dickens in 1859 seems a suitable way to describe it!

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”

It will go down in history as a milestone that will have a pervasive and lingering influence on how we view and adapt to the world. Let’s not make any bones about it, 2020 was a tough year. The year flew by, which was a feature that typified 2020 – how timelines have been redacted, be it the speed with which information is carried around the world, the speed of the market crash in March 2020 followed by an equally rapid market recovery fueled by loose liquidity and the record-breaking speed of development of numerous vaccines.

In the context of last year and the start of 2021, which has already had its fair share of drama, be it the invasion of the US Capitol on 6 January and new rounds of lockdowns around the world, it is natural to reflect on your investments and how you should be thinking about them.

Let’s pause and take stock of the global economic situation and the behaviour of markets. Firstly, the world experienced a widespread recession in 2020, markets hit rock bottom in March 2020 and governments globally injected liquidity into the system. This created a significant disconnect between the economic fundamentals and general market return (with some notable exceptions). Looking ahead into 2021, we expect global growth to return, led by China and the eastern hemisphere, with additional stimulus being driven by the incoming US Democrat administration led by President Biden. The big risk for 2021 will be related to the efficiency and effect of the COVID-19 vaccine roll-out, with a second and potentially a third wave of infections creating additional rounds of economic damage and fall-out. So expect markets to be volatile and highly sensitive to sentiment.

When it comes to your investments, the best course of action is to be prudent and not make any hasty decisions. Hold on to what you have (remain invested) unless you absolutely have to access your savings and investments to deal with emergencies. Even then, be mindful of where you make your withdrawals from, take into account the tax implications, especially with your retirement savings, as well as the potential to lock in any losses that you may have experienced in growth-orientated investments (in this case, equities come to mind). Any significant withdrawals will reset the base of your investments and, as economic growth reverts in the medium term, you will be affected by missing out on potential investment returns. The effect of any investment decisions you make now will have consequences for years to come, so they should be carefully considered and the assistance of good financial advice will be invaluable at this time.

As you would have seen during 2020, there was a significant effect across different types of asset classes, with some experiencing strong recoveries after the March 2020 market crash and others still not fully recovering. Globally, the strongest recoveries were experienced in large tech stocks and locally there was strong returns from resources counters. Where and how to invest is an important question, and we do not know when, and which asset classes will recover. We would expect investments and asset classes that are sensitive to global economic growth, those that best adapt to the new realities and expected changes to our ways of work and living after COVID-19 as well as those that are trading at deeply discounted levels to be areas of investment that will reward investors.

Remaining well diversified is always good and sound advice. Considering the level of risk you take in your investment portfolio and, crucially, to link this to an appropriate timeframe, is important considerations. The more risk you take in your investment portfolio, the more time you need to give your investments and the more you need to be able to resist making changes as a result of short-term volatility and losses.

These are the basics of sound investing and, despite the 2020 that we have gone through and the real risk that 2021 is not going to be different (if the start of the year is anything to go by), there is no reason to not continue following these principles. The key is not to panic, to continue to follow a structured and disciplined approach to investing, have patience as well as not be influenced by emotions and sentiment in the short term.

We rigorously follow these principles when we manage our own portfolios. We are here to help clients achieve their goals on their investment journey, because when it comes to investments, for us, it’s personal.

ENDS