Coron­avirus hits home as in­vestors take flight

Sunday Express - - FINANCIAL - By Har­vey Jones PER­SONAL FI­NANCE EDI­TOR

STOCK mar­ket in­vestors have zero im­mu­nity against the global panic caused by the fast-spread­ing coron­avirus, as share prices crashed last week amid grow­ing fears over the im­pact on the global econ­omy.

This will con­cern many or­di­nary savers with pen­sion funds or Stocks and Shares Isas, as they watch the value of their in­vest­ments plunge, with al­most £4.7 tril­lion wiped off global stocks, in the worst week since the fi­nan­cial cri­sis.

Many will now be won­der­ing whether they should risk in­vest­ing in­side their an­nual tax-free in­di­vid­ual sav­ings ac­count (Isa) al­lowance in the fi­nal weeks of the fi­nan­cial year, given cur­rent un­cer­tainty.

You have un­til mid­night on April 5 to in­vest up to £20,000 in an Isa, or lose this year’s al­lowance for good.

So what should you do?

PLAY IT COOL

Paddy Osborn, aca­demic dean at the Lon­don Academy of Trad­ing, said global mar­kets could fall 15 to 20 per cent from here, as sup­ply chains are hit, and gov­ern­ments place re­stric­tions on travel, schools, fac­to­ries and busi­nesses: “Ul­ti­mately, buy­ers will re­turn but prob­a­bly at much lower lev­els than to­day.”

Chase devere char­tered fi­nan­cial plan­ner Pa­trick Con­nolly said any­one in­vest­ing in a Stocks and Shares Isa must un­der­stand that mar­kets can be volatile and you can lose money, es­pe­cially in the short term: “If you can­not ac­cept this, then you prob­a­bly should not be in­vest­ing in the first place.”

As with all as­pects of the deadly virus, panic does not help any­body, and most pri­vate in­vestors should re­sist the rush to sell. Emma Wall, head of in­vest­ment anal­y­sis at Har­g­reaves Lans­down, said try­ing to time the mar­ket in this way is no­to­ri­ously dif­fi­cult and even pro­fes­sional in­vestors get it wrong: “Panic sell­ing of­ten locks in losses and jump­ing back into the mar­ket is hard to do.”

If you are in­vest­ing in an Isa or pen­sion, with a 10-plus year view, Wall said the best course of ac­tion is to do noth­ing and stick with it.

An­other draw­back of sell­ing up is that you will not gen­er­ate any div­i­dends while out of the mar­ket, a se­ri­ous con­sid­er­a­tion with the UK stock mar­ket gen­er­at­ing an av­er­age yield of 4.24 per cent right now.

Over the longer run, a large chunk of your re­turns come from the compoundin­g ef­fect of rein­vest­ing div­i­dends, and you do not want to miss out on that.

You should never hold money in shares if you are likely to need it in the next year or two, as mar­kets are only for long-term sav­ings.

THINK LONG

Con­nolly said long-term in­vestors should pro­tect them­selves by build­ing a prop­erly di­ver­si­fied port­fo­lio: “As well as shares, put some money into bonds, prop­erty funds, cash and gold, to gen­er­ate smoother re­turns.”

Brave in­vestors and bar­gain seek­ers may even take ad­van­tage of re­cent stock mar­ket falls as an op­por­tu­nity to buy at to­day’s lower price. “Eq­ui­ties will bounce back at some point and if the out­look for coron­avirus im­proves, this could hap­pen quickly,” Con­nolly added.

Pictet As­set Man­age­ment chief econ­o­mist Pa­trick Zweifel pre­dicted “a se­vere short-term im­pact that should be fol­lowed by strong re­cov­ery”, as China and other coun­tries get to grips with the cri­sis.

How­ever, buy­ers must brace them­selves for fur­ther falls in the days ahead, as cur­rent anx­i­eties seem likely to in­ten­sify as more peo­ple are di­ag­nosed with the in­fec­tion.

RE­COV­ERY TIME

Money­tothe­masses.com di­rec­tor Damien Fahy said a safer way to in­vest in a Stocks and Shares Isa is to set up a reg­u­lar monthly sav­ings plan.

If you do this, long-term in­vestors can turn fall­ing mar­kets to their ad­van­tage: “As you drip money in, you pick up more shares or fund units when mar­kets dip, boost­ing your re­turn when they even­tu­ally re­cover.”

If mar­kets fall fur­ther, at least you can buy more shares next month at the cheaper price.you can still drip-feed money in if you want to take full ad­van­tage of this year’s £20,000 Isa al­lowance.

If you in­vest us­ing an on­line plat­form, you could park your money in a Stocks and Shares Isa ac­count in cash, to pre­serve its tax ben­e­fits. “Then drip the money into stocks or in­vest­ment funds over an ex­tended pe­riod,” Fahy said.

If cur­rent stock mar­ket vo­latil­ity is giv­ing you sleep­less nights, it may be time to re­think your en­tire ap­proach: “This sug­gests you are tak­ing far more in­vest­ment risk than you are com­fort­able with.”

Til­ney In­vest­ment Man­age­ment Ser­vices man­ag­ing di­rec­tor Ja­son Hol­lands said in­vestors who are will­ing to buy now should pri­ori­tise the UK, as its share prices of­fer bet­ter value than other de­vel­oped mar­kets, and higher div­i­dend yields.

His favourite UK eq­uity funds in­clude Lion­trust Spe­cial Sit­u­a­tions and TB Even­lode In­come.

The coron­avirus is caus­ing fear and anx­i­ety in the short term, but in­vest­ing is for the long-term.

When the in­fec­tion starts to ease mar­kets should quickly re­cover, as they have al­ways done in the past.

‘When the virus is brought un­der con­trol mar­kets should quickly re­cover, as they have al­ways done’

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