With the shocking and sad news that Russia has invaded the sovereign country of Ukraine, investors are experiencing a time of market uncertainty and volatility.
Negative shocks are a part of long-term investing, and it is worth remembering that taking some risk has historically been the only way to beat the effect of inflation.
Reasonably, investors may consider in times of uncertainty what action is being taken by the investment managers of their portfolios and should they take any personal action.
History has shown us that the message during tough times has always been to keep calm and stay invested. This is because timing markets has proved to be extremely difficult. Once uncertainty subsides, time and time again markets eventually tend to bounce back.
At the start of the global pandemic a medium risk portfolio fell by 18.85% from 20th February 2020 to 23rd March 2020. However, between 24th March 2020 and 31st March 2021, the same portfolio bounced back by some 28.93%.
Had fund managers moved out of risk-based investments into cash or perhaps gold in March 20, they would have missed out on the 29% bounce back in the next 12 months.
While each event of shock and uncertainty is difficult, bounce backs are a feature of long-term investment. Events such as the attack on Pearl Harbour, the Suez Crisis, the invasion of Iraq, Brexit, and the global financial crisis of 2008, all initially caused market volatility, but were followed by bounce backs.
The overwhelming majority of our clients have settled income which more than meets their expenditure. In addition, we always recommend clients have a cash cushion or emergency funds in bank and building society accounts. This cushion covers any short-term need for cash.
With certainty of income and a cash cushion, again we would counsel clients to keep calm and stay invested. Most portfolios are extremely diverse and hold funds which invest only small amounts in each individual stock. This diversity which also includes different asset types such as bonds and property and typically also global diversity helps manage and spread risk.
Our thoughts go out to the people of Ukraine at this very difficult time.