Wednesday 18 March 2020 8:14 am

Investment and coronavirus: Keep calm and don't cash out

Coronavirus has sent stocks plunging like few other events in the history of financial markets.

The FTSE 100 has dropped by a third in the last month. Other indices such as the S&P 500, Japan’s Nikkei, and Germany’s Dax are all in roughly similar positions.

Not only are people concerned for their health, but their savings are shrinking at an unprecedented rate. It is, understandably, a disorientating time for investors.

However, the message from those in the know is not to panic.

Here’s how to navigate financially through these uncertain times.

Keep emotion out of it

While people may be feeling glum about their finances, one of the most important things to do is sit tight, says Moira O’Neill, head of personal finance at Interactive Investor, and “do not react to the headline stories”.

“On paper your investments might look bad, but remember that you have not actually lost anything until you have pressed the button to sell up,” she says.

“If you’re feeling emotional — and many of us are, not just in relation to the markets — you’re likely to make a bad decision. Write down your thoughts about your investments and make sure that you’re acting rationally and for the right reasons before you sell. This applies to buying too.”

Laura Sluter, head of personal finance at AJ Bell adds: “It is understandably hard to detach yourself from the emotion of investing, but at times like this it is more important than ever that investors don’t panic and overtrade.

“No one knows what’s going to happen and it can be expensive to keep moving a big percentage of a portfolio around. If you make a change to your portfolio, make sure it’s for the long term, not for a few days, and that you know why you’re doing it.”

Meanwhile, Emma Wall, head of investment at Hargreaves Lansdown says: “Market drops such as the ones we experienced last week trigger our fight or flight reflex, and we have an urge to act.

“But the worst time to sell is when the markets are down, as you will only crystallise a loss.”

Think long-term

Moreover, this is not the first time that markets have plummeted spectacularly. Many investors still bear the scars of the 2008 financial crisis. Black Monday in 1987 shocked the world, in part because it came as a bolt from the blue for most. And yet, those who held firm for the long term rode out both disruptions.

“Markets often rebound quickly once the immediate issues are resolved and selling now will merely lock in losses and result in people missing out on any recovery,” says Sluter.

“Keep calm and carry on is a great soundbite, but amid volatile markets, it is difficult for investors to put into practice when it is their retirement nest egg on the line,” adds Myron Jobson, personal finance campaigner at Interactive Investor. “But investors can take solace in the fact that markets have a good track record of recovering given time.”

Indeed, Interactive Investor research shows that a £1,000 investment in the FTSE All Share index at the end of February 2000, just before the dot-com bubble burst early in the millenium, would have grown to a £2,492 at the end of last month, a gain of 149 per cent

“This month marks the milestone 20-year anniversary since the dot-com bubble peaked — we all know what happened next, which is an unfortunate coincidence given the recent sharp falls in markets owing to coronavirus uncertainty. The past two decades saw a recovery from both the dot-com crash and the global financial crisis — prime examples of the benefits of long-term investing.”

Diversify your portfolio

This one is a more general instruction, but experts agree it is vital in long-term investing: make sure that you have a diverse portfolio.

Sluter says: “The first thing to ensure is that your portfolio is well diversified, for example not too heavily concentrated on a handful of stocks or funds, or one or two particular countries, industries or themes that could be particularly hard hit.

“You should also avoid any investments that go beyond your normal risk tolerance or don’t really fit with your long-term goals, target returns and time horizon. These sorts of ‘punts’ are most likely to hurt you if things really do take a turn for the worst.”