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Investments, what should I be doing?

By Philip Oxley - Topics: France, investment diversification, Investment Risk, Investments
This article is published on: 6th April 2020

06.04.20

What’s been happening?
It’s been a very turbulent period over the past few weeks as Coronavirus has taken hold and the impact on the financial markets has been almost unparalleled. Oil is now cheaper per litre than milk or bottled water due to an “oil war” between Russia and Saudi Arabia leading to an oversupply of oil in the markets. In addition, with fewer people on the roads and most airlines grounded, storage facilities are believed to be only months, possibly weeks away from full capacity. Some speculate that the price of oil could fall to zero! Those assets deemed to be “safe havens” such as gold have provided some refuge but it is still trading lower today than it was towards the end of February.

Most of the major financial markets experienced falls of c. 30% during the end of February and into March and whilst there has been some recovery, there remains much volatility and it’s not clear yet that the bottom of this dip has been reached.

Meanwhile, every day there is news of companies cutting or suspending dividend payments to shareholders and as I write this the UK’s major lenders have all agreed to scrap pay-outs to shareholders during 2020 (after receiving a strongly worded letter from the Prudential Regulation Authority). The banks are also being asked to scrap bonuses to their executives.

Why? Well, this should provide the banks with a much needed, extra £8bn cushion as they face increased demands to provide financial support to individuals and businesses in the form of loans, mortgage holidays etc.

What should you be doing?
For those who are close to retirement age, I cannot overstate the importance of speaking to your financial advisor during these challenging times. Essentially, the closer you are to needing to draw a pension or access your investments, the bigger the impact this drop in the markets will have for you.

For those of working age with a pension scheme or schemes and/or savings invested in the markets what actions can you take? Fund managers have been working hard to mitigate the extreme movements in the markets and protect the value of the funds they manage, but there is no escaping that a significant “correction” has taken place. For those of you brave enough to look at the value of your pension fund/s, most will be facing a reduction in value in the region of 10-25%.

It is impossible to say that there will not be further falls, however history has shown that pulling your money out now (where this is an option) or re-calibrating your portfolio by moving out of equities and into bonds, gold, cash etc. is rarely the best course of action. Typically, these decisions are taken too late (when many of the falls in value have already taken place) and re-entry into the markets is typically made too late (missing out on some of the gains that will have already taken place). The result of this is to lock in the losses that have taken place. Remember, these are only paper losses at this stage, albeit painful to bear – and it is only once you move out of the assets or remove cash that a loss will be realised. Whilst it takes a steely resolve and not a little anxiety, it is nearly always better to stay invested and ride out the storm.

It is certainly a good time to review the balance of your investments in your pension scheme or Assurance Vie to ensure they still match your risk profile. But be careful about disproportionately moving out of equities at this stage, as this may hinder the growth of your portfolio as the markets return to growth.

What next?
Markets will recover as they have always have (think 2008 Financial Crisis or “Black Monday” in 1987) – it’s simply a case of when and there could be more volatility over the coming months before we see this happen. There are some early signs of green shoots in Asian markets, for example, factory data from China showing a sharp step up in activity in March.

But the news from many European counties and the US is grim. Most developed nations, and many others besides, will experience a sharp and deep recession. The hope remains that the decline in growth will be “V” shaped as opposed to “U” shaped, meaning the recession will be short-lived and the recovery quick and significant. This is not guaranteed however, and the length of the downturn will depend on many factors, perhaps the greatest being the spread and extent of Coronavirus cases over the coming months and the speed and size of response from governments and central banks.

So, is it a good time to invest? Possibly, but with caution and perhaps a “drip-feed” rather than an “all-in” approach. And as always, it’s better to have a financial advisor working alongside you to provide professional guidance in these matters.

Finally
On a personal note, apart from when I am out meeting clients, most of the time I work from home – from the end of our dining room table which is in a quiet room during the day. I occasionally remind my teenage children to be quiet at the times they are at home, particularly if I am on the phone speaking with a client. Yesterday, my 13 year old son, stuck his head around the door and said, “Could you guys keep the noise down please?“ My wife and I were discussing the challenges of on-line food shopping and he was in the next room on a live streamed lesson, so his request was perfectly reasonable. But times have certainly changed!

The coming months are going to be very challenging for us all. We are seeing the consequences of Coronavirus both in terms of the restrictions we all have on our way of life and more devastatingly on the lives lost across so many countries. At this time, the overriding focus for us all must be on the welfare and safety of ourselves, family, friends and neighbours. In addition, on top of these concerns, many people will become stretched financially.

As the French-born Etienne de Grellet said, “I shall pass this way but once; any good that I can do or any kindness I can show to any human being; let me do it now”.

Is this the time to invest and where?

By Charles Hutchinson - Topics: investment diversification, Investment Risk, Spain
This article is published on: 23rd October 2019

23.10.19

I was having lunch with a friend of many years the other day. When I asked why he was not currently invested and why he had not been for some time, he replied that it is too dangerous a time in the world with too many problems and that we were on the verge of a global market collapse. Further investigation revealed that he had had his money in the bank, largely unprotected against bank failure and earning less than a single digit interest rate (and that was for his Sterling) which was also taxed. What made it worse was that the majority of it is in Euros and he was actually having to pay charges to the bank for the privilege of keeping it there.

Although this sounds an extreme example of bad financial planning, it shows that we need to take professional advice sometimes. We need to diversify and we need to understand that the world is no worse or insecure than during the terrible wars and crises of the past. Money is not a Will o’ the Wisp, disappearing into thin air when not being utilised; it has to have a home in which to dwell for better or for worse. The secret, therefore, is to place it for the better in homes that are largely secure, allowing you to diversify smaller amounts somewhere else for better returns. In this era of low interest rates, which is set to continue for quite a while, that home should not be in a bank, except for your current account and a cash reserve for emergencies and planned spending over the next, say, 2-3 years. There is limited protection against bank failure and the return to be obtained is taxable and insignificant.

My old friend lamented that this was not the time to enter the market, to which I replied that there is no good time until you have left it too late (this is true of most markets). It is not market timing which is important, but time in the market. Unless you have a trading account for speculative investment, you must always plan to invest for the long term (5 years plus). The investment house Fidelity produced some excellent statistics which showed that (once invested) by not being in the market for just 10 specific days in the last 10 years, you would have lost nearly 50% of the market (London FTSE100) growth each year versus staying fully invested. Missing 20 days, this would have been halved again.

Missing out on 30 days, you wouldn’t have broken even after brokerage charges. Markets are like the tide on the sea shore – they rise and they fall. The difference is that each time the tide comes in, it reaches a little higher up the beach. And that is caused by a natural phenomenon called inflation, which moves hand in hand with growth

investing in tough times

I asked my friend if he was invested in 1987. He looked away gloomily and said that he had instructed his broker to sell out all his positions when the October crash arrived that terrible Monday morning. He watched with dismay as the markets around the world collapsed as soon as they opened and there were no buyers, fuelled by a flawed computer system over which there was no control. He lost over 35% of his capital over the next four days. At the time I was a trainee investment manager on the Australian desk of a prominent investment house in the City. The telephones rang off the hook and our advice was emphatic and simple: do not bale out. Hang in there. I remember my mentor, who was a keen yachtsman, saying, “If you are in a boat out at sea and a big storm blows up, you don’t jump overboard, do you? No. you batten down the hatches and wait it out”. This is the advice I have always given my clients ever since. Those who heeded our advice and waited it out actually ended that year in a higher position than when it started.

I can hear some readers already asking where they should place their hard earned capital after a life time of working and saving. There is no one single answer to this. It depends on your risk tolerance, your likes, and your needs (now and in the future). As ably described in our book “A Guide to Investment Risk” by Peter Brooke (opposite), diversification is everything.

Guide to investment risk

This could be across multiple global asset classes (to include gold bullion, diamonds, antiques, rare paintings, rare books, classic cars, etc.) or it could be an investment portfolio containing multi global assets managed by multi managers of different expertise and disciplines. It is always wise to remember that Risk is linked directly to Reward. The higher or lower each one is will reflect in the other. Also reflected is volatility, where the higher performing assets will mostly endure higher volatility (continuous high/low oscillations which are not for the faint hearted). When doing financial reviews with clients, we are careful to establish their risk appetite and the returns that can be expected taking into account that risk.

You cannot have a high performing low risk investment – there is no such animal. What you can expect from a good adviser is a steady performing investment at whatever level you set your tolerance to give you the return you want as long as you run the course, who does not try to time the market and who picks long established names who have been around many years. We often recommend long established (each over 150 years) London based investment managers to manage a client’s private portfolio, or we place clients in multi asset, multi manager investment funds. To those who are averse to volatility, we offer “smoothed” investments which are described by my colleague Anthony Poole elsewhere in this website in “Tax Efficient Investments“. These are safe secure investments which are tax efficient and which produce a steady return year after year, way above anything you can expect from a bank product.

Greed is the enemy of many investors. It is the curse of humanity. If you are not greedy, your money will grow securely at a respectable pace. Manage your own expectations – do not alter course when you see your returns are doing well. Do not cut corners, especially with tax. We only choose tax efficient products. Investment choice and tax efficiency are completely entwined. Tax is another subject to be explored in more detail and is covered elsewhere on this site by my colleagues. If you would like a copy of our Spanish Tax Guide 2019 (there is also one available for France), please contact me below.

To discuss these points in more detail, why not call me to make an appointment and let’s have a coffee together? Please remember, there is no commitment on your part but such a huge commitment on ours! With care, you will prosper.