The Coronavirus Crash: Why Investors Shouldn’t Panic
It can hardly have escaped your notice that in the last week or so shares generally have plunged in value due to economic fears sparked by the coronavirus outbreak.
If you have a pension pot, stocks and shares ISA, or any other equity-based investment/s, this is obviously a worrying time. It’s very important to avoid knee-jerk reactions, though.
In particular, unless you really need the money urgently now, you should think very carefully before selling up. By doing so you will be locking in any losses. Even though it’s true that shares may have further to fall, this advice still applies. All share prices are cyclical, and rises and falls are to be expected. That is why stock market investments should always be regarded as long term.
- Luckily, there are a few apps that offer you experts’ advice on safe long-term investments. You can check some of the best on the market at BestStockTradingApp.com.
A further consideration is that if you sell up now, you won’t receive any dividends due from your shares further down the line.
Should You Top Up?
With share prices currently falling, should you take the opportunity to ‘top up’? That is actually a difficult question to answer, as it’s impossible to know for sure how much further the markets will fall before they recover. Timing the market is notoriously difficult, and many investors in the past have had their fingers burned by thinking they could second guess it.
Nonetheless, if you are currently investing monthly into a stocks and shares ISA or other fund, I would say you should almost certainly continue to do so. One consequence of the fall in share prices is that you will get more shares for your money now. This will actually boost the value of your portfolio in the longer term when the markets recover. This phenomenon is called pound-cost averaging. It is one reason why making regular smaller investments rather than one-off lump sums can be such a good option for investors.
Otherwise, it is really a matter of personal judgement. If you think that a certain share or fund is good value at its current price there may be a case for investing in it. Inevitably, though, this will be a bit of a gamble. I am not personally planning to top up my equity portfolio until the present crisis appears to be well on the way to being resolved.
Beware of Pound-Cost Ravaging
If your pension is already in drawdown – especially if you are early into your retirement – pound cost ravaging is a risk you need to be aware of right now.
If the value of your pension pot is falling and you are also drawing money from it, those two things together have the potential to deplete it rapidly. You are then increasing the risk of running out of money later into your retirement.
If you have other sources of cash, therefore, it may make sense to reduce or even suspend entirely withdrawals from your pension pot during this time. This will help preserve its value. You will be able to resume withdrawals when – as will inevitably happen at some point – the markets recover. The great majority of pension providers will be happy to do this for you if you request it.
Consider P2P and Other Non-Equity Investments
If you have money to invest, in my view there is a good case right now for considering other types of investment such as P2P.
Regular readers will know that I am a fan of this type of investment (if approached sensibly and selectively) and have a fair-sized portion of my own portfolio invested in it. I won’t go through all the possibilities now as this is a subject I discuss regularly on Pounds and Sense. But if you are looking for a couple of ideas to start you off, I recommend checking out RateSetter – a relatively low risk P2P lending platform which I reviewed in this post – and Bricklane, a REIT (Real Estate Investment Trust) which offers a highly tax-efficient Property ISA (reviewed in this post).
See also this recent post which includes more ideas on how to use your 2019/2020 ISA allowance.
As always, if you have any comments or questions about this post, please do leave them below.
Disclaimer: I am not a professional financial adviser and nothing in this post should be construed as individual financial advice. Everyone should do their own ‘due diligence’ before investing and seek advice from a qualified financial adviser if in any doubt how best to proceed. All investment carries a risk of loss.