Making sense of mayhem in the markets needs a calm approach

Investors should maintain a watching brief on the effects of Covid-19, says Allan Gardner, financial services director at Aberdein Considine

The coronavirus outbreak has certainly monopolised media headlines over the past few weeks, and most of the focus has, rightly, been on the health and welfare of the population.

But the impact on businesses, the wider economy and global stock markets is also a key issue.

Markets around the world have experienced a substantial hit, and many experts have likened the current situation to the global financial crisis we saw 12 years ago.

A large number of people are invested in stock markets indirectly through their pensions. But it is those who have invested directly in shares who may be affected most by significant falls in share prices. They are more likely to have a reasonable knowledge of markets, and know that buying into stocks carries a higher degree of risk than investing indirectly – through collective investments, for example.

When planning an investment strategy, it is important to think about your short, medium and longer-term needs, as well as taking into consideration any possible life changes.

Any investment decisions should take account of these life changes, while you should also make sure you have an opportunity to check your investment portfolio on a regular basis.

Designing an investment portfolio requires careful planning and a key element is managing the potential downside of an investment, as well as targeting the potential gains.

With markets having fallen quite substantially in recent weeks, it would be extremely tempting to sell all or part of your portfolio and move into cash.

On the one hand, that would provide some security but it would also crystallise any losses.

The additional risk of this strategy is that you may miss out on any subsequent recovery in the markets.

Investing is not an exact science, and having a diversified portfolio cannot guarantee that you will not see losses. It is impossible to predict what will happen over the next few weeks and months but it is important that investors maintain a watching brief on what is happening – both in the UK and around the world. The general recommendation is any portfolio is reviewed on a regular basis, and now would seem the perfect time to do so – whether you’ve had a review during the past few months or not.

Deciding to stick or twist in the current environment requires a calm approach.

Seeking some independent financial advice will at least help you to consider all the options before you make any decisions.

“It would be tempting to sell all or part of your portfolio”

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Allan Gardner: you must consider life changes