Living North Promotion
1. WE CAN’T PREDICT THE FUTURE – PAST PERFORMANCE IS NOT A GUIDE TO FUTURE RESULTS
If anyone in mid-2019 had predicted the year ahead they would have likely been laughed out the room. It is important to recognise that these events, however rare, can happen and that it not possible to predict the future. Many will have seen the phrase ‘past performance is not a guide to future returns’ or something similar. Past performance is important to understand how an investment has behaved in different conditions previously, however this does not necessarily mean it will be repeated in the future. When thinking about your own investments it is important to make sure that these remain suitable for your objectives, attitude to risk and capacity for loss. Holding onto investments because they have done alright in the past is not sufficient rationale alone for keeping them into the future.
2. DON’T PANIC!
As COVID-19 spread around the world, stock markets around the world fell sharply in late February and into March, with some of the sharpest and most severe market falls in history. On March 16th the Dow Jones Index, a commonly followed index of US Stocks fell 12.93%, the second largest daily drop on record. By the 23rd March the FTSE 100 Index was down year to date by 34.33%. Over the course of these weeks a number of investors panicked and withdrew their funds, sometimes at a substantial loss.
This however was one of the shortest bear markets in history and by mid-June markets had recovered much of their lost ground, with the Dow Jones actually posting positive year to date figures at the end of August. Good news about the prospects of vaccines developed by Pfizer and Moderna added a further boost to global stock markets at the end of October. The sharp drop is an unpleasant feeling as an investor. The important message in times of volatility is to remain focused on the long term and to ensure that when making an investment, you have sufficient time horizon and capacity for loss for your chosen investment.
3. DIVERSIFICATION IS KEY
Global markets fell by around 35% year to date by the end of March. This however is less severe than the fall in share price of some individual companies which were particularly badly affected by the COVID-19 pandemic. Take for example Carnival PLC who own P&O Cruises, whose share price fell by 73.1% from the start of the year to the end of March. Shares in International Consolidated Airlines Group, owners of British Airways, were down by 66.2%.
Though these two shares are among some of the more extreme examples, they highlight the importance of diversifying your portfolio so that you are not too exposed to any one company, area of the market or asset class. COVID-19 impacted particularly severely on the travel and tourism sector however areas of the market like supermarkets and telecoms were less severely affected with the
Tesco Share Price down 10.56% and the Vodafone Share Price down 23.55% over the same time period.
It is important to remember that it is not only possible to diversify across different shares and sectors of the stock market but also across different asset classes including government bonds, corporate bonds, property, commodities and alternative assets like infrastructure. Diversification is a key way to help mitigate risk within a portfolio and helps us devise portfolios which align with the client’s attitude to risk.
4. HAVING AN EMERGENCY FUND IS VITAL
Many businesses and individuals faced a sudden fall or even complete stop in their income this year. Having an emergency fund will have provided an essential lifeline to those in these circumstances. Without this emergency fund in place it is possible that you may have to look to short term borrowing which can be very expensive or look to sell assets at what might be an inopportune time. As a general point we recommend keeping a minimum of 3 months expenses (ideally 6) in an easily accessible cash savings account
5. MONEY IS A MEANS TO AN END
Retirement planning is all about making the most of your hard earned savings to allow for the flexibility and lifestyle you want now, comfortable in the knowledge that your future needs have been accounted for. Cash flow planning demonstrates how your financial position will change over time as you achieve those retirement objectives. At Sandringham Darlington we consider building a Cash Flow Plan to be a fundamental part of confident retirement planning, allowing us to foresee potential challenges and harness opportunities. In a year where we are reminded that health is very much something to be grateful for, it is important to also remember that money is but a means to an end. Planned carefully it can be a source of great security and facilitator of a retirement well spent.
Our ongoing service includes cash flow planning as standard for our clients. If you are planning for the future let us help you. Please get in touch today for a no cost initial chat on 01325 808075 or email us at: firstname.lastname@example.org
This article is not intended to constitute personal financial advice. We strongly recommend that you consult a professional adviser before proceeding with any financial transactions.