Coronavirus hits home as investors take flight
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?
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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.
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.
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’