As the Government’s COVID-19 roadmap for post-lockdown re-opening gradually unfolds, our advisor Wayne Audsley takes a look ahead at 2021

There’s no doubt the period 2020 to 2021 will be notched up as a historic one for all of us, both personally and professionally.

In fact, many are likening the COVID-19 pandemic to the current generations’ wartime experience.

It’s affected everything we used to class as normal – from where and how we work to how we shop for essentials and, maybe most profoundly, how we maintain our family and social relationships.

And, with reports of job losses, business closures and whole industries being forced to shut up shop through successive lockdowns, the markets have seen a rollercoaster ride of ups and downs. The Spring of 2020 saw a reactive crash in stock prices, with the FTSE 100 falling dramatically from 7,622 points on 3 January 2020, to 5,190 points as the implications of COVID-19 became clear and the UK moved towards its first lockdown on 20 March, 2020.

So, all this considered, you could be forgiven for worrying about the potential risk of investing, despite the fact that the global stocks investment funds buy into have since recovered well, with many returning to pre-crash levels.

Contradicting this, though, Wayne’s view of all this is ‘why wouldn’t you?’.

“If you’re investing for the long term, and you should always be investing for the long term if you’re talking about investing in funds, then what’s going on right now doesn’t really matter. It’s what’s happened over the past 10-to-15 years that counts, and what that might mean for future growth.

“And, while there have been dips along the way, including the 2008 financial crisis, the markets have delivered solid returns over that period of time.”

And, just to put this into perspective, he adds: “Look at the last five years, for example. We had the Brexit referendum in 2016, along with a change in prime minister, former US President Trump declaring a trade war against China in 2018 – which triggered the sharpest three-month fall in stock markets since the crash in 2008/2009 – and then the global coronavirus pandemic of the past 12 months. Yet, despite all of that, our portfolios have provided excellent returns over the last 5 years!

“Even with the unprecedented disruption the world has seen due to coronavirus, the markets have still done quite well. People sometimes assume that, because the UK’s gross domestic product (GDP) isn’t where is should be, and unemployment has gone up, things will be bleak in terms of investment returns. However, in reality, companies and stock markets are still making money, because that’s what they are programmed to do.

“In fact, despite the mood of doom and gloom, and the hardship many companies have sadly faced, there are also a lot of businesses that have notched up their best performance yet over the past year or so.

“Of course, though, you shouldn’t assume that past performance is a guarantee of future growth, and it’s important to always go into any investments understanding the risks involved, and where your own risk appetite sits.”

Opportunity amidst adversity

And there’s more road left to run, in terms of upward growth momentum, Wayne believes, with a strong possibility that even sectors like hospitality, leisure and travel – which have been really badly hit – will benefit massively from pent-up consumer demand once they are allowed to re-open. This could make investments in those areas particularly fruitful as a result.

“If the four steps of Prime Minister Boris Johnson’s roadmap out of the current restrictions come to fruition, many people may have spare cash,” explained Wayne.

“Anyone who is earning may have money in their pocket that they haven’t been able to spend for months on end. So, there is the potential for them to be keen to get out there and do so, and we’ll see a more buoyant economy again as a result.”

And this should mean that the recovery in global asset prices that has already happened, has further still to go.

“When sectors like catering, retail, property and travel get back to full swing, there are potentially further gains to be made by investors as those businesses start operating and making profits again,” added Wayne.

Ultimately, in Wayne’s opinion, the stock markets always come right in the end.

“Businesses, and the stock markets they are part of, are ultimately programmed to make money, year after year, and they’ll continue to find ways of doing so, no matter what,” added Wayne.

“So, any further dips or even crashes might affect your plans if you’re planning to retire right now, but if you’re saving for the longer term, there’s no reason to panic.”

So, if you have capital to spare, when would be your best time to jump in?

“I always tell clients that the best time is now,” explained Wayne.

“That’s because of what I said about the importance of taking a long-term view. If you happen to have a lump of cash to spare just when the market crashes, then great, you may stand to make exceptional returns on that when things do bounce back, but there’s no point in waiting until the next low point because you just can’t predict when that might happen, and you’ll have lost out on any gains you could have made while you’re still waiting.

“The important thing is to get your cash squirrelled away and give it chance to start growing at the earliest opportunity, always remembering, of course, that you must be able to afford to withstand any fall in the value of any investments you make, in line with your overall investment objectives.”

What about cash?

“It’s always important to make sure you have enough reserves to meet any day-to-day needs you have, and we would always recommend that you only invest what you can A/ afford to put away for the long term, as I’ve outlined, and B/ are prepared to take some level of risk. We all know that markets can fall as well as rise, and you need to make sure that, if they do fall, you’re not going to need to take your money out at the wrong point and lose out.

“However, returns on cash savings have never been so low. It used to be that you could save a cash pot alongside your longer-term investments and earn five per cent per year in interest. However, those days are long gone. I did some research the other day and it showed that the best fixed rate savings rate, at that point, was 1.7 per cent, and to receive that rate customers had to lock that cash away for seven years. With talk of the Bank of England potentially considering introducing negative interest rates to support the country’s recovery, this situation can only really get worse in the medium term.

“So, you have to weigh that up against the average growth in our portfolios over the past five years, for example.”

What does Wayne mean by a ‘long-term’ investment?

The answer to this depends in your personal circumstances and what you’re investing for,” he said.

“However, the minimum length of time for investing is generally considered to be five years, so I would say at least five-to-10 years.

“I always answer this question by posing the question ‘what are your objectives?’, because the answer to that will guide the length of time you choose to invest for.”

And he’s keen to bust some popular myths around this subject.

“Sometimes people think this is too long for them to put money away for if, for example, they’re older, but I encourage them not to think like that. In my opinion, it’s potentially worth investing whatever your age,” continues Wayne.

“Because, over the long term, your money should grow and be worth more, and therefore either you can benefit from that growth yourself, or you can pass on the benefit of it to your loved ones when you die.

“I always tell clients that it’s time in the market that will give you the return when it comes to investments,” concluded Wayne, “not the time at which you invest in the market,” and so if you have cash it’s important to invest it at the time when you have it, and let that be your guide.”

So, what are you waiting for?

If you’re inspired by what you’ve read and would like to arrange a free, no-obligation initial chat about your options, you can contact Wayne and the team via (01482) 860700 or email us.

This blog is intended to provide readers with viewpoints, opinions and inspiration regarding options they might want to consider. It is not intended to be taken as advice and we strongly recommend seeking professional financial advice before taking any action.