Coronavirus and the stock market


As the UK remains in lockdown, as part of the government’s strategy to protect the NHS and save lives, the pandemic’s impact on our daily routines and on headlines around the world looks set to continue for the foreseeable future.

Meanwhile, the effect of coronavirus on global stock markets continues to be felt.

Here at home, the FTSE 100 experienced its biggest quarterly fall for more than 30 years, dropping by 25% in the three months to the end of March. The virus is also expected to deliver a hit to the UK economy of up to 35% of GDP.

Whilst short-term volatility can be worrying, it’s important not to panic. Instead, stay focused on your long-term goals.

Keep calm and carry on

Periods of short-term volatility in the market are to be expected. Whilst the cause of this particular economic downturn is unprecedented in our lifetimes, the short, sharp shocks of world events cause regular stock market ripples.

The trough the market has seen of late might not feel like a ripple right now, but if we track the FTSE 100 over the last 35 years, it is clear that it has experienced many blips, including the 2008 global financial crisis:

The 2008 trough can be clearly seen, as can the fact that the market recovered and continued on its generally upward trend.

According to IG, the compound annual return of the FTSE 100 index over the 25 years up to 2018 was 6.4% with dividends reinvested. This would be a total return of 375%. And remember that this period also saw the bursting of the dotcom bubble, the war in Iraq and the EU referendum.

Stay focused

Investing in the stock market is a strategy for the long term. Everything from international trade wars to national elections will have an impact on stock markets in the short term and prices fluctuate daily.

That’s why it’s so important to remain focused on your long-term goals and to remember that if they haven’t changed, your long-term financial plan needn’t either.

It’s important to bear in mind:

  • Short-term blips don’t hamper long-term goals

Short-term market volatility is nothing new. Whilst short-lived blips occur, in the long term, markets tend to offer positive returns. Even a sustained period of unrest becomes a momentary trough when looked at over the longer term.

A diversified portfolio, if left invested, will ride a temporary storm.

  • We can help you drown out the noise

When we refer to stock market ‘noise’ we might mean Brexit, US-China trade wars, or local politics. Noise creates periods of economic uncertainty and, in the short term at least, the stock market hates uncertainty.

Ignoring the noise is crucial to your long-term plan. In the same way that you wouldn’t sell your house if prices suddenly dropped, nor should you allow periods of economic unrest to lead you to make emotional, knee-jerk decisions.

Source: Vanguard

The nature of the current downturn might be new but in terms of stock market movements, we’ve seen it all before. Here at Investment Sense, we can use our years of market experience to lead you through the difficult times, helping you to ignore the noise and keep you on track towards your long-term goals.

  • Hold tight and wait it out

It’s an oft-used phrase in investment but it is true that time in the market, not timing the market, is what counts.

This graph shows the hypothetical growth of $10,000 invested in the US S&P 500 Index between January 1, 1980, and December 31, 2018.

It highlights the impact of knee-jerk reactions and the money lost if you had pulled your money out of the market, for varying lengths of time.

Missing just the five best return-days over the length of the investment reduced returns by $232,550. Missing the best 50 days would see you miss out on $602,203 of potential growth.

This hypothetical example includes dividend reinvestment but not the impact of taxes. ‘Best days’ were determined using the one-day total returns for the index and ranking them from highest to lowest.

Source: Fidelity

Don’t panic

The strange times we’re currently living through can heighten our emotions, potentially leading to uncharacteristic reactions or snap decisions, but we might also use these months of uncertainty as an opportunity to reflect. Think about your long-term plans and goals. Whatever they were pre-coronavirus, they’ll likely be exactly the same once the crisis is past.

The financial plan you have in place should give you peace of mind during times of uncertainty. It is based on your long-term goals, diversified to protect against short-term blips, and remaining in the market will allow your investments to continue to grow once the current downturn has passed.

If you’d like to discuss the impact of coronavirus on your financial plan, get in touch. Please email or call 0115 933 8433.

Please note:

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.