Every day brings new developments in the spread of Covid-19 and reactions from the investment markets. The news has been getting worse and it is now clear that this is going to have a significant economic impact. In fact it is likely that this all triggers a recession. This is something none of us want but it is to be expected from time to time as an investor and we have a plan for how we manage this on your behalf.
Despite the sensationalised coverage the overall expected death rate is less than 1% and once the spread is over our economy will recover. The reason for the aggressive measures we are seeing is to control pressure on our healthcare systems to reduce the number of people dying unnecessarily from lack of care. This is something we should all support despite the economic costs.
At times like this it is very important to step back and look at the big picture. We know that recessions occur regularly and are always triggered by something whether that is a banking crisis, a rise in inflation or, in this case, the need to control the spread of a virus. I would like our clients to separate the scary news cycle from their views on the investment markets. Strip away all the colour and this is ‘just’ another possible recession and those of us who’ve been investing for a long time have seen a few. One good effect of the bad news is that the progression of this is rapid and so we should expect a relatively rapid recovery too. Governments will also take further aggressive coordinated actions which will help. Despite all of this the forces that create recessions are likely to start up and the knock on effect may be felt for the next 6-12 months.
I hope it is comforting to know that we have been advising you with the knowledge that something like this could happen. We did not predict it but, as I said above, we always knew that something would cause a recession at some point. We never know the timing but we can be pretty certain they will happen. Our philosophy is to make sure we capture as much of the growth from investments as we can when times are good whilst making sure we hold significant protection inside the portfolios to cushion us from falls. This protection now has been in the form of large holdings in Government Bonds which are rising strongly in value now. The effect of this has been to cushion most of our client portfolios from the stockmarket turmoil. I hope you are comforted to know that we have performed better than our competition as markets were rising and to offer better protection as they fall too.
Once the dust settle on this episode the falls we are seeing will also create significant opportunities for investors. In fact, if you take a longer view, the markets today offer an attractive buying opportunity. These opportunities will probably not apply to all investments and how we take advantage is important. Overall we believe the next period for stockmarkets will looks quite different to what we have experienced over the last 10 years and the winners and losers are likely to change quite significantly. Rebuilding a portfolio that would have worked well over the last 10 years is probably a mistake. We are confident in our plan to manage this change for you successfully.
As always if you have any questions or would like to speak to us directly please get in touch.