Understanding where to invest your money and how to manage your savings amidst an economic crisis could be said to be somewhat of a challenge! We’ve previously covered ways in which you can make money during retirement, but when it comes to retirement fund strategies, that’s a slightly more tricky ball game!

We reached out to Stephen Jones, CEO at Cooper Parry Wealth to ask some key questions about wealth management during the current global pandemic.

During the current coronavirus outbreak, what are the best trading strategies for retirement funds? What has changed since pre-COVID-19?

The world as we know it has changed recently beyond anything we may have witnessed before thanks to the preventative measures drafted by governments worldwide.

As a result, stock markets have fallen in response to the impact on the global economy.

Whilst investors will understandably be worried by the speed and magnitude of the falls, they should resist the urge to trade reactively. The global economy and markets will recover from this, that is certain.

Nobody knows when this will be and therefore, as tempting as it might be, investors should try to avoid speculation or hasty trading based on fear. Investment funds which are part of a long-term retirement plan will, in time, recover in value too.

Investors should also remember that not all profiles have fallen in value. At times like this, government bonds typically act as safe haven assets and are bought by those investors selling higher risk assets such as equities. Therefore, the impact of the recent market falls on their own investment funds may not be as bad as they first feared.

For instance, a sensibly diversified portfolio that is 60% invested in shares and 40% invested in government bonds might be down around 15% whereas global stock markets have fallen by 25%.   

Investors who hold a balanced portfolio investing in shares and bonds should look at the balance of their portfolios between the asset classes and consider ‘rebalancing’.

Rebalancing allows you to take the profit from the asset class which has done well, a current example would be bonds, and reinvest these funds into the asset class that has fallen in value, being shares. This is often counterintuitive and demands a strong stomach. However, for those that engage in rebalancing, it allows reinvestment into shares, which over the long-term should provide higher returns than bonds and will overall improve a portfolio’s long-term return potential.   

How have markets behaved in response to coronavirus? Was this response expected/unexpected? What can individuals learn?

Stock markets have, not surprisingly, fallen due to the global economy in effect being pretty much shut down in some countries. Some industrial sectors such as travel and leisure have been very hard hit and some companies may survive with the considerable government intervention we have seen. Some companies will no doubt not survive at all. Nobody could have anticipated the spread of the coronavirus and the speed/impact on the global economy and stock markets.

However, financial crises have happened before in history and while each one occurs for different reasons, the lessons for long-term investors are always the same. If you are already invested, the best approach now is to stay invested and allow markets to recover and along with it, your investment portfolio.

Investors who are sitting on a paper loss from their portfolios don’t have an actual loss unless they sell. Deciding to sell is an easier decision.

The hardest decision of all is then deciding when to reinvest your funds back into stock markets. However, by the time economies are recovering and investors start to feel more confident about the future, stock markets will have anticipated this and will have already started their own recoveries. Many investors will miss this; the very point at which their losses could have been replaced. 

Studies on investors behaviour, particularly at times like this, show conclusively that the biggest destroyers of investment value are not the stock markets but the behaviour of investors who take action based on their emotions. Faith, patience and discipline should be the watch words of every long-term investor. Faith that the global capitalist economy will grow overtime. Patience that stock markets will also grow as the global economy grows. And discipline to stay the course.  

If you do indeed find you have some spare cash and you are willing to take a long-term view, stock markets are now around 25% cheaper to buy than they were at the start of the crisis. This should mean that for the future, they are a good buying opportunity. This is only as long as you are prepared to see the value fluctuate and possibly go down in the short-term, before long-term growth eventually evens out and comes through.  

Where has the biggest market shift been following coronavirus? Has there been more activity from retail or from institutional traders?

The largest market participants these days are the institutions, pension funds and hedge funds – many of which will use computer-generated trading strategies. This is why the speed of the stock markets fall and rise at times of financial crises tend to happen much more quickly than in previous market crashes.

It also means that many retail investors will simply not be able to react quickly enough. Any decisions they make on investing should therefore always be based on a long-term view and as part of a well thought out financial plan.    

How can investors stay profitable in the current markets?

Some of the best advice to investors at times like these comes from legendary investors such as Jack Bogle and Warren Buffet. 

Jack Bogle said: “My rule — and it’s good only about 99% of the time, so I have to be careful here — when these crises come along, the best rule you can possible follow is not “Don’t stand there, do something,” but “Don’t do something, stand there!”

Whilst Warren Buffet said during the 2008 financial crisis when buying into the stock market after the falls, and everyone else had sold:

“Be fearful when others are greedy, and greedy when others are fearful!”  

What is the predicted recovery time for the market in general?

The truth is, nobody knows how long stock markets will take to recover. There is already a great deal of debate as to whether the markets will recover quickly, perhaps as early as the second half of 2020, or if they take a longer period of time, it may take a year or even longer due to a protracted economic recession.

Either way, investors are usually best-served to stick with their retirement fund strategies and ride out the market turbulence, taking the long-term view. Remember faith, patience and discipline – especially now! 

Thanks to Stephen Jones for his support and contributions. How have you been investing (or not investing!) over the past few months?