Markets are driven by sentiment and that means they perform irrationally at times. But over the long term rewards can be made.
The always thoughtful Brian Dennehy of Fund Expert says: “Don’t predict the future – just control what you can control”.
In other words, make sure you have a mixed portfolio with, say, a 10 per cent stop-loss on any high-risk investments and a good chunk of your savings in cash, as much as 50 per cent, recommends Mr Dennehy.
He has long warned of a correction of 25-30 per cent in stock markets, but recently upgraded that to a risk of falls in the 55 per cent to 80 per cent range.
“That’s not a pleasant thought, but it’s not the end of the world,” he says. “It is essential to recognise the danger and figure out how to respond.”
Avoid complacency
He warns of complacency generated by a 40-year bull market when shares have always recovered, but he fears that stock markets are extremely vulnerable to a shock.
“If the outbreak of the spreading of the coronavirus is the shock, it is a massive wake-up call to investors and the financial industry and the media, a large proportion of whom have sleepwalked into the unfolding crisis,” he warns.
I cannot help but agree. But the difference I have noticed during this financial crisis is the response of ordinary savers and investors. I have had people buttonhole me in the pub with a cheeryish: “My pension’s lost 15 per cent.”
A colleague on a national newspaper updated me on the progress of his stocks and shares Isa, which had shown a 15 per cent gain a few short weeks ago. Now it is down more than 5 per cent.
The attitude in 2020 seems to be of resignation rather than anger. The current generation of investors lived through the financial crisis of 2008. They understand the nature of risk and accept it is a part of investment. And that is the positive that has come out of the current crisis, to my mind.
We now have a section of the general public that is a lot more aware of financial matters. That does not mean that losses hurt less, but just that they will not run away and stash their cash under the bed instead.
No. Like markets, they will bounce back another day.
Simon Read is a freelance journalist
