Coronavirus and the stock market is all the news seems to talk about right now. It’s easy to start getting worried – but wait!
“Should I sell my shares and ditch my pension?” is the question we’re hearing from readers all over social media.
My answer is the same as Warren Buffett‘s: “Be fearful when others are greedy, and greedy when others are fearful,” and he should know!
In other words, go against the crowd. So, when all around are losing their heads and selling their investments, stand firm and don’t be spooked.
Easy to say I know, but investing is for the long-term so we all have to think that way. Here’s how to think of your pension, ISA and general investment holdings while the stock market goes mad!
- What to do with your pension
- Should you change your equities ISA investments?
- What to do with your stock market investments
- Should you sell everything and stick the money under the mattress?
There’s no doubting that coronavirus and the stock market go hand-in-hand at the moment. The news is full of scare stories about how much has been ‘wiped off’ the value of people’s pensions and I have been on TV and radio programmes answering questions about it. These are my views:
If you are more than ten years away from retirement
Really. You don’t need to even think about it. Yes, your pension is most likely very largely invested in equities (stocks and shares) and yes it has probably lost a lot of money. But in the long-run that doesn’t amount to a hill of beans.
At some point – maybe in a few months or maybe next year – the stock market will bounce back again. In fact, I think that when it bounces back it will do so in a really BIG way. Even if it’s a moderate bounce back, though, it will be worth the wait.
The history of the stock market is full of behaviour like this:
- Back in 1975 the stock market lost 72% of its value from its peak. Over the next 12 months is jumped back up by 100%
- The financial crisis in 2008 was a time of total market turmoil, yet £1,000 held with the average investment company at the height of the market just before the crash would have grown to £2,348 today
Andy Bell, CEO of the fund managers AJ Bell says “The current bear market — or fall of more than 20% — is the FTSE All-Share’s 11th since the launch of the index in 1962. The good news is that the average bear market lasts just over one year and the typical drop is 36%. By contrast, nine bull markets over the same period delivered an average capital gain of 142% over a typical period of more than four years.”
In other words – hold on, don’t panic. The coronavirus and the stock market drop will change things temporarily – but not for ever.
if you’re coming up to retirement
Again. Don’t panic.
- Firstly, it’s likely that your pension fund has already started ‘lifestyling’. In other words, fund managers have moved much of your money into more stable products like bonds and cash, in case of exactly the situation we are now in. Check with your pension company (or companies) and see what they say. You may find that any loss isn’t as severe as you expected.
- If you’re retiring this year, either put it off for a year or only take a small amount. Live on a less for a while until you feel your pot is back to where it should be. In fact, if you’re happy to keep working, even part-time, you could also consider putting extra into equities ISAs to make the most of the current very cheap stock market. See below for more on that.
Again, leave them there.
For most people, this is a short-term dip that will be followed by a bounce – probably a big bounce – so keep your head and your money in the same place.
In fact, if you haven’t already filled your £20,000 ISA allowance this tax year consider putting some in by April 5th. I’m not saying that we have hit the bottom of the market yet – no one can call that accurately – but we are certainly a long way down and, as China has already started to go back to work, it’s likely that the upturn, or flattening out at least, will happen in a few months’ time. That’s my prediction and I could be wrong but if the upturn doesn’t happen then it will happen at some point a little later.
Basically, it’s just a matter of time.
if you’re retired or about to retire
As above: I would leave them where they are and even consider investing more, depending on where you feel you are in your life.
As most of us are likely to enjoy long retirements – certainly longer than people used to expect – it’s worth having some money invested for the future while taking an income from the bulk of it. Now is a cheap time to invest in shares so consider being brave and putting your ISA money into shares, or stock market funds, that are likely to go up in the next year or two.
Whether your stock market investments are in an ISA or outside of them, hold on to the sides, don’t sell but wait for a few months at least. In fact, consider buying more if, like me, you think the market will bounce back again sometime soon.
Yes I know that’s a daft idea – after all, who has a mattress big enough to store all your millions?
But it’s an understandable approach.
The stock market has just lost you thousands of pounds so of course you’re going to want to take your money out and put it somewhere that feels safe, whether that is in an actual safe in your living room or in a bank or building society account that is literally giving no interest at all.
I will allow you to take your money out and put it in cash if:
- You wait until the market is really healthy, you have regained all your losses and things are looking so good that you would actually like to keep your money in shares.
- When you take it out you are looking for an income and that’s why you’re putting it in savings accounts.
- You have other money in something that is giving you a better income (maybe income-bearing shares or funds or perhaps bonds)
- You don’t mind getting a small income from your savings.
what most people do and what you should do
What most people do is they buy into an investment, like shares, when everyone else does which is when it’s at its most expensive. Then, when the investment drops like a stone – as it is now with the stock market – they panic and sell.
Result? They lose – big time.
What you should do is…
Take Warren Buffet’s advice (see above) and buy when the investment is low (around about now and probably over the next couple of months) and then wait until everything is rosy, everyone else is buying and the price of shares has gone right up and then sell, making a nice fat profit.
Go and do it!
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