We all knew March was a bad month. Stock markets plunged, millions of people were confined to their homes, and the Olympics was cancelled. But even I was surprised to find out that we haven’t seen such a bad month on the market since 1987.
We’ve had some pretty huge events in that time: unexpected, game-changing, momentous events such as the terrorist attacks on the World Trade Centre, the bursting of the dotcom bubble, and a financial crisis that rippled around the world for a decade. Yet it is the Covid-19 crisis that saw stock markets plunge in ways they hadn’t in more than 30 years.
While that’s not exactly good news for anyone’s savings, it’s those close to retirement that I feel most concerned for. This sell-off was powerful enough to knock thousands of people’s carefully laid plans severely off course. It could see people having to delay their retirement by years or, in some cases, never reach it.
It’s all very well for young experts to talk about riding out volatility and buying opportunities in this current mayhem, but that’s not an option for some people.
It could be that the power of the pension freedoms will become a real lifeline to many people; the fact that individuals can now leave their money invested even after they’ve retired allows the chance for at least some of their savings to recover. This may also be a time that financial advisers can really prove their worth, not just for their skills but for their ability to provide reassurance to troubled investors.
There's no easy answer but, if it's any solace at all, no one can predict the future on this one. The analysts and experts may be keen to find the opportunities, but when it comes to knowing what happens next, they're in the same boat as you and me.
The Truth About Trackers
I said at the outset of this crisis that I would be intrigued to see what ETF investors would do. While markets have soared in recent years these funds, which track the stock market, have attracted assets like the Pied Piper of Hamelin attracted rats. I’ve been concerned for some time about what would happen when the party was over, and investors realised that tracking a market means following it back down too.
It was no great surprise, to be honest, that ETFs endured record outflows in March. Investors withdrew almost €22 billion euros from these funds in the month.
This is precisely the wrong thing to do, of course.
Investing is a funny beast. While it involves putting real money on the line, none of the profits or losses are real until you hit the sell button. In the investment world, it’s called crystallising; turning those numbers on the screen in a real, solid, tangible thing. And it’s an important concept to remember for anyone who doesn’t absolutely need their money right now.
Those tracker fund investors who have just learned the hard lesson that markets go down as well as up, could also find out how well they can bounce back if they stay the course.
Shoppers - and Investors - Have Long Memories
This is a real opportunity for companies to shine. In the weeks, months and years to come we will remember the firms that provided exceptional service during these crazy days: the deliveries that didn’t disappoint, the internet and phone providers whose signal never failed, the companies proactively getting in touch be it to offer payment holidays and reassurance. The likes of Barbour and Burberry (BRBY) moving their manufacturing from stylish macs to protective aprons, and the gin distillers pumping out bottles of hand sanitiser.
And we will also remember those that don’t. The businesses that have refused refunds, failed at customer service, or simply shown no heart.
In my case, I’ve been impressed by my mortgage provider, which was quick to drop interest rates when the Bank of England slashed base rate to a record low, and by the bank which has maintained the rate on its savings account, despite the cut. I’ve marvelled at the innovation of the local businesses on my high street and the delivery drivers that wave through the window as they continue to work in such difficult conditions.
At the other end of the spectrum is the firm that insisted on charging me a cancellation fee for the holiday I had planned for May, even though the flights aren’t running and the hotel is closed.
I know which of these businesses I will and won’t still be using after all this is over.
