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As the global population prepares to protect itself against the full force of the coronavirus pandemic, the effects on the global stock markets are already clearly in evidence.

Last week saw the FTSE fall by more than 10%, experiencing its worst day of trading since the financial crash of 1987. Similar volatility has struck all the major markets around the world. Despite coordinated action from central banks to ease the effect of the global pandemic, markets continued to fall when trading began at the beginning of this week. It is likely that current events will cause a slowdown of the global economy and stock markets have reacted to this significantly.

Market fluctuation and sharp declines in share value such as we’ve seen over the last couple of weeks can be unsettling and worrying for us all. Now more than ever, it’s worth reminding ourselves of the key principles of sensible investing.

Better to stay invested

The temptation when we see plummeting red lines on stock market graphs is to take action. We react on an emotional level. We want to end the pain and discomfort we’re feeling and seek comfort by selling our shares.

However, in a climate of such uncertainty investors shouldn’t panic. Selling will only crystallise the loss. Selling is a vote of no confidence in the markets, the actions of an investor who believes that this is an entirely unique event and things will never get better. History, however, has shown us that that is not the case.

We have been here before

As investors, we have experienced similar circumstances before with the global markets and we are likely to again in the future. Whilst a 10% plus depreciation in assets during a quarter is relatively infrequent, it has happened around 10 times in the previous 20 years so isn’t unexpected. This is something we tend to forget when we’re at the sharp end of a global market meltdown.

The financial crisis of 2008 is the most clear and memorable example. The causes were different but the effect on the markets was the same. However, over time the markets recovered and the investors who sat tight saw a return to growth in the following years.

Long-term planning not short-term reaction

At Progeny we structure portfolios and investment strategies for the longer-term and, at times like these, long-term planning comes into its own.

The robustness to external events – be that a financial crash, a global pandemic, a dot-com bubble or anything similar – mean we use asset diversification to reduce risk. Our portfolios are created for the long term, which is why generally we would not recommend changing investment strategy in reaction to shorter-term market volatility.

Diversify as a defence

A diversified portfolio that benefits from diversification across and within asset classes and geographically, by holding investments in domestic and international markets, is one that is best prepared to face market volatility. Diversification of investments creates a defence against market fluctuations, limits exposure and balances out risk.

Progeny portfolio performance

With the above principles in mind, our mid-range Dynamic Growth Portfolio is currently outperforming some of the leading global equity indices by between 20% and 80%.

Review your portfolio

If, as an investor, you’re keen to take action in response to global market volatility, reviewing your portfolio to ensure it is well-diversified and structured for the long term would be timely.

The Progeny Portfolio Review Service is an independent evaluation of the investment strategy and performance of your current portfolio after costs and gives an insight as to how this compares to the industry as a whole. It offers bespoke advice on your existing investment strategy, covering suitability and risk, performance and benchmarks, costs and charges and MiFID II service standards.

You can request a review here, or to discuss your requirements in detail, please get in touch.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.

Author Ian Hooper

Director, Asset Management

Ian joined Progeny Asset Management as a founding director in 2016 and manages the business day-to-day.

Learn more about Ian Hooper

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