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Coronavirus Q&A - Helping you understand the key issues

I understand the continuing volatility in the stock market is worrying for you all those invested in equity portfolios and I have written individual emails to my clients reviewing their pension plans

It is only natural be concerned and in order to help you better understand the key issues at these unprecedented times I am sharing the contents of an email from Aberdeen Standard Investments in which they compiled a list of key questions and answers.

What is happening in the market?

In recent days, equity markets have suffered their steepest falls since 2008 – prompting comparisons with the global financial crisis: the event that defined the past 12 years. The similarities should not be overstated. The 2008 crisis was intrinsic to the financial system itself, not a response to an external threat. For all its potential impact, the coronavirus outbreak is a much more conventional crisis. Thus far, the financial system has done what it is designed to do: allow investors to react decisively to a changing economic environment. However, volatility seems likely to continue.

Why have my investments fallen by so much?

Investors hate uncertainty. This rapidly changing situation is one of the most uncertain situation investors have ever faced. As a result, some investors have panicked and sold anything they deem to be too risky. This has included equities and in many cases bonds issued by companies. The money generated has been invested in assets such as government bonds, which are often popular during times of uncertainty due to the comparatively reliable income they provide.

What is the likely impact on global economic growth?

We expect global growth to fall well below its current trend in the first three quarters of the year. A number of countries are likely to enter technical recessions (i.e. two consecutive quarters of negative growth). We expect full-year global growth to be just 1.7% in 2020, making it the third-weakest year for the global economy since 1980. Since then, only 1982 and 2009 have been worse. But if the spread of the virus slows in the second quarter of the year, we expect a strong rebound in growth from the fourth quarter onwards. Our projections are for a growth rate of 3.9% in 2021. This will be achieved with the help of the significant support from governments and central banks that has already been announced or is widely expected.

Could the crisis cause a more severe recession?

Although the downturn is likely to be similar to a typical recession in many respects, it may be sufficiently brief to avoid significant debt defaults and job-shedding by companies. The uncertainty remains very high, however, and a deeper and more persistent recession is certainly possible.

Is now the time to withdraw investments?

Given the recent and very sharp falls in markets, we don’t think that there is likely to be much benefit for investors in selling investments now. The correction has been the most marked since 2008 and may well have already factored in much of the economic damage that the coronavirus outbreak will do. So investors who sell out now risk crystallising losses rather than avoiding further falls.

Is now the time to add to my investments?

Although tactical flexibility is crucial, it’s important not to get sucked into attempting to ‘time the market’. Calling the bottom of a bear market is notoriously difficult. There is a famous investment saying that "It is time in the market, not timing the market" that matters. Spreading investment across both time and assets is whats important. However, especially in times of such uncertainty, it is always important to consult with your adviser before making any investment decisions.

Important Information

Investment involves risk. The value of investments, and the income from them, can go down as well as up and an investor may get back less than the amount invested. Past performance is not a guide to future results.

About the author

Billy Burrows

Billy Burrows has been involved with retirement options for over 20 years, advising clients on all aspects of pensions and retirement income options.

He divides his time between advising individual clients as Retirement Director at Better Retirement and running Retirement IQ, which publishes guides including the popular ‘You and Your Pension Pot’ and ‘The Retirement Journey’.

He is frequently quoted in the national press and appears on radio, podcasts and videos and writes extensively on retirement income matters.

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