WITH covid-19 spreading across the world we are seeing major disruption to the global economy. Business operations have shut down to try to curtail the spread and flights have been banned. This is having knock-on effects for supply chains and has the potential to lead the world to the point of economic contraction – and maybe even recession – and it is this fear that has led to investment market losses.

Governments and central banks are likely to be highly proactive in trying to offset the damage caused by lost activity, although to what extent these actions will offset the slowdown is hard to tell. The impact from the virus so far has mostly been a supply side shock, economic activity is falling as supply of products and services have been disrupted (although the longer lockdown measures are imposed, the greater impact this will have on the demand side of the economy). Unfortunately, supply side shocks are harder to overcome in the short term with policy measures, than demand side shocks.

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While fear has certainly gripped global markets, we believe this is a situation that will largely be resolved as we move through the year and that over the medium term we can expect a reasonable recovery in terms of economic activity and stock market levels. No one can predict the peaks and troughs of financial markets with any accuracy however, and it is extraordinarily difficult to time when the best (peaks) and worst (troughs) are, so often the preferred policy is to stay fully invested over the medium to long term.

Volatility is a normal part of long-term investing which is why we always take time to understand how much risk any client is prepared to take before investing. We also generally believe in the benefit of diversification of assets to help manage some of the extremes of the markets. Taking a multi-asset approach means that some assets can fair better in different market conditions as they are more defensive assets such as bonds, whereas during periods of growth equities tend to fair better.

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Presently, we believe the appropriate course of action is patience. Some investors may even see this as an opportunity, with equities clearly lower priced than they were even a few weeks ago, however, our philosophy is that time in the market not timing the market, is usually the best approach.

  • If you wish to discuss any of the issues raised in this article or would like a review of your investment/pension portfolio please call 0808-144-5575 or email help@armstrongwatson.co.uk
  • By Iain Lightfoot is joint managing director, Armstrong Financial Planning and Wealth Management