Covid-19: Reviewing your investment portfolio
At a time like this, it’s always unsettling to watch the value of your savings dip. But remember, investing is about time in the market, rather than timing the market. In the absence of a crystal ball, nobody could have foreseen the current market conditions that we are experiencing.
However, today’s circumstances will have undoubtedly led to many more checking in on the performance of their investments than ever before. Some might even be tempted to sell or move investments, but the saying of ‘less is more’ comes to mind.
Being too active when managing your portfolio in the current climate might not be the best thing to do. By resisting the urge to switch funds, you may be able to lessen or reverse the impact of any losses.
Selling your investments
Recent falls in financial markets have prompted comparisons with the global financial crisis of 2008.
With some seeing the value of their savings decrease as a result, many have been tempted to sell. However, before you start selling any investments, you should consider whether you really need the money right now.
If you compare it to selling your home, you wouldn’t sell it at a discounted price, unless you had to. So why would you do that with your investments?
Investments are inherently at risk of going down as well as up in value, but the longer you leave your money invested, the better your chances are of seeing it grow and giving you better returns in the long run.
Although past performance isn’t a definitive guide to future performance, investing is a long-term game and, however uncomfortable it feels right now, history would suggest you are better off letting investments ride the wave.
Reducing the risk of investments
Of course, it’s your decision if you want to make any changes to how your money is invested. Most investments have some sort of risk rating that can help you decide if the level of risk is right for you.
However, before you move into other investments there are some things you should consider.
The same situation of riding the wave applies. If you move your investments after markets have already fallen, you could miss out on the recovery in the markets you are currently invested in.
If and when markets do start to recover, this is when you might want to think about the types of investments you are in, reassessing your attitude to investment risk before making any changes.
Put simply, diversification is the concept of not putting all of your eggs in one basket.
This is a very important concept, particularly at a time like this, as by having a diversified portfolio the weakness of any one investment will have less impact on your overall returns as it is likely to be balanced by the strength of another.
People can lose money over the long-term if they focus too narrowly on one or two sectors with investments, rather than holding a broad spectrum across different industries.
The current pandemic shows this very clearly. An investor who had decided to purely back companies in the travel sector, such as agents or airlines, could be looking very vulnerable today. But those with a broad mix of investments will be better placed to weather the storm.
So when reviewing your portfolio, consider how well diversified your investments are. If you’re sufficiently diversified, you may see a temporary hit, but you’re very unlikely to see your savings evaporate.
Keep calm and stay invested
This isn’t the first time markets have seen major sell-offs and it won’t be the last. Think about continuing to regularly invest and keeping up any regular payments into a pension or ISA.
While now might not be a good time to sell investments, if you are able to put more money away there will be some assets available at a lower price.
One way of looking at this is that markets are on sale – it costs a lot less to invest in the largest companies in the UK than it did a month ago.
And as we’ve previously mentioned, it’s generally considered a good idea to have a mix of different types of investments, so you’re not putting all your eggs in one basket. Now could be as good a time as any to consider diversifying and expanding that portfolio to protect it from any future downturns.
Last but not least, it’s always important to have some money in cash to cover unexpected shocks or nasty surprises. Most advisers will suggest having at least three to six months’ income readily available as a cash buffer, something to factor into your broader financial planning.
Laura Laidlaw is head of customer communications at Standard Life