Growing your investments in a crisis: five insights from our expert
A crisis doesn’t have to mean financial ruin for your investments. Here’s how to make the most of a turbulent market
The pandemic and the resulting economic downturn have presented a challenge for investors. Even before the arrival of COVID-19 our inaugural Wealth Expectancy report revealed that nearly six in 10 savers would fall short of their wealth expectancy (the peak amount of wealth they expect to attain by the age of 60).
But despite the turmoil of 2020, Standard Chartered’s Chief Investment Strategist Steve Brice believes you can still secure your financial future with a well-thought-out plan, mapped to your life goals.
Here’s Steve’s advice for maintaining a strong investment strategy in unusual times.
Look for the silver lining
When markets are weak and there’s a lot of negative news, it can be difficult to take a step back and look for the positives. But the world will recover, advises Steve. “‘This too shall pass’, is a phrase we should constantly remind ourselves of. Just because it’s bad today doesn’t mean it will be bad tomorrow. And actually, often that’s a great time to be investing.”
View volatility as opportunity
Most people see volatility as a negative. But it can create opportunity as well.
“If markets go down 20 per cent, they are 20 per cent cheaper,” says Steve. “But you need to make sure you have the staying power through that volatility by being diversified, both across asset classes and within asset classes. Too many times I hear clients saying the best way to get rich is to identify the next Facebook or Amazon. The problems here are twofold. First, what makes you think you will do better than people who spend 50-60 hours a week trying to do the same thing?”
Second, he adds, “volatility becomes your enemy, not your friend. If the equity market goes down 30 per cent, a diversified investor should feel confident starting to accelerate investments or rotating into equities. An investor in a single stock does not have the same confidence that weakness in the stock is a buying opportunity as it could be the wrong company or sector – for example bank and energy stocks over the past 10 years.”
Managing your emotions through volatility is the number one challenge most high net worth individuals face and diversification is the best antidote to this
Avoid information overload
Steve believes that less may be more when it comes to the information we consume — particularly when it affects our personal finances. For instance, what is better, daily portfolio valuations or quarterly portfolio valuations? The risk of daily updates is that they can divert you from the long-term plan when the portfolio performance is temporarily poor.
“Imagine every day seeing your wealth decline, and the inner voice is telling you to do something about it –sell,” Steve says. “But we know that just staying invested in a diversified allocation will lead you to outperform 90 per cent of investors. Therefore, access to daily portfolio statements can make you more emotional and cause you to overreact to the latest information. And investing should not be an emotional business. One way to stay the course, is to keep a track of how much you have invested along the way. Once you have invested for many years, without selling, then the positive performance should help give you staying power. ”
Go slow at the beginning
In turbulent times it’s easy to panic in the wealth management space. But Steve advises investors to take their time, “Dip your toe in, go slow. Ideally pre-commit with some rules. Try to think where you should be in three years and have a plan to get there. Don’t panic about getting there too quickly. Again, this is about managing your emotions.”
He adds, “I think the key test for me should be, if the market is down 20 per cent, when you come in tomorrow morning will you be scared or excited? If you plan carefully and set aside cash on the sidelines you can deploy, and if your investment time horizon is long enough not to worry about it — then you can be excited.”
Be patient and persevere
We can all still realise our financial dreams, but the journey might now have to take a different route. With expected returns reducing over time and life expectancy going up, your time horizon is going to extend, making early retirement more of a challenge. “So, you’re less likely to retire when you’re 60-65; it’s looking more likely to be 70-75,” he adds. “It’s not a popular outcome, but it’s the realistic one. Patience and acceptance of that fact should become a mindset for investors to grow.”
The good news is that you can still grow your investments in a crisis, by taking a measured approach. Even if the direction is not the one you envisioned, and it takes a little longer than planned.
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