Over the last few weeks volatility has increased quite significantly with the backdrop of the coronavirus pandemic. Even less volatile investments are now starting to see fund value reductions.
In the circumstances I thought it would be a good idea to outline some basic thoughts about investments:
- Rule number 1 is you need to remain invested. It is virtually impossible to time markets, so you just remain invested
- If you are in growth mode and not drawing income, we just wait for the markets to recover. This will happen given time
- Drawing income from your pension or investment funds is more complicated. My advice in this case is as follows:
- If possible, stop drawing income from your investments and draw on your cash deposits – emergency funds. This is what the emergency funds are for
- Should you not have any cash assets to draw on reduce your income from your investments or pension funds to the minimum you can manage on. You are trying to protect your invested funds for the long term
- When markets recover switch your pension or investment income back on
- Replenish your cash deposits (your emergency funds) with capital from your Stocks & Shares or Investment ISAs after the market has fully recovered
This is the ‘three pot’ approach we talk about and advise our clients on all the time. It might be a while before markets recover, please just be patient and stick with the strategy outlined above.
The key point about this approach is that we are trying to sustain and protect your capital for the long term. It’s a simple and effective plan.
If you have any questions on your own personal situation, please don’t hesitate to contact me. In the current environment I’m spending more time in the office.
I know it’s a well-used phrase at the moment, but it really is a time to ‘Keep calm and carry on’.
Steve Speed
17/03/2020