In the last few weeks we have seen falls in stockmarket levels which have little parallel within the last 20 years, and that includes the financial crisis. A combination of 10 years general growth in stockmarkets followed by COVID-19 and an oil price war have fuelled fear around the world. By the time those selling out of the market reacted the vast majority were already behind the curve; many will have been tempted to buy back in with each spike since, afraid that they would miss the recovery; many will then have sold again when markets continued to fall.

One of the reasons why we have always recommended diversified portfolios is because, under these sort of conditions, whilst equities fall other assets may not, or may fall by much less, or may even rise. Looking at portfolios on review recently we have generally seen a fallback to around the values of 2017. This obviously depends on how much equity exposure each client has had and where equity exposure was 100%, there will have been little to lift the portfolio. However, those with all equity portfolios will be those with the longest time period and the highest risk appetite and will have enjoyed significant growth over the last 10 years.

Although any fall is disappointing, the true question is still “when are you going to need to use your investments?” Investment is a medium to long term endeavour and, when your need moves to short term, needs to be adjusted, which is why we always try to find out well in advance if you have plans to use any of the portfolio. Until you take money out of the portfolio, the losses, just like the gains, are simply figures on a piece of paper. They can become quite scary figures, but they remain just figures until you sell your investments.

There are some things that are worth consideration and these relate mainly to those people using their portfolios to support their lifestyle. Where withdrawals are being made, we always look to carry enough cash to take us to the next review point plus a margin. Where possible we also use Income Units, paying income into the cash account, so that we would expect to always have a surplus rather than running out of cash. In these conditions that is obviously useful however, it is still worth considering if you are able to reduce expenditure short term whilst we see how this crisis pans out.

Where we are conducting reviews, you will be used to us looking to rebalance the portfolio by selling out of funds which carry too high an allocation and buying into funds which have too low an allocation. We do however allow a tolerance of +/-10% to avoid “tinkering”. As you would expect, at this time this would mean selling out of lower risk funds and buying into equities, potentially a scary prospect. However, the principle of rebalancing remains the same now as it was last year or the year before. Where over the last 10 years we have generally been selling out of equities to buy less volatile funds, unless one believes that we have reached Ragnarok and there will be no recovery, the principle is as sound now for buying into equity funds.

However, we recognise that the levels of volatility are such currently, the prospect for further large falls high and the next review point maybe 6 to 12 months away, that we will aim not to rebalance fully but to limit any proposed rebalance to movements which would bring the main equity holdings just into the 10% tolerance and to be mindful of the impact of any changes. We have the option to revisit all portfolios once the crisis has passed and volatility settled down, although this is most definitely not an attempt to time the markets as that is something which we know is impossible and therefore something not to be attempted.

So in essence we would encourage you to remember why you are investing, the true timescale over which your investment needs to run, the fact that the only thing we have ever guaranteed is that at some point your portfolio value would fall, the reason why we diversify, why we have kept rebalancing in the face of strong equity growth and the principle of rebalancing even in the current circumstances.

The other thing which we have seen over recent days has been the suspension of funds which hold property or property related assets. These are full suspensions, so no investment into or withdrawal from the funds, and is due to the inability at the moment to properly value the underlying assets. Unlike shares which are traded every day and therefore have a market driven value daily, property, in particular commercial property, ground rents and leases, are traded infrequently and the valuation process can be protracted. This is actually one of the benefits of such an investment in the right place and right proportions in a portfolio. As when some funds were suspended from withdrawals following the Brexit referendum, this does not mean that there are any fundamental issues with the investment and once the current panic has subsided we expect the funds to reopen with little effect on their values.

Finally, we would as always encourage you to contact us if you have any questions or concerns and if you can’t get hold of your usual adviser, please feel free to contact me.