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The importance of sticking to your investment strategy in a crisis

Article By Adam Hurwood | | Financial Planning

As you are no doubt aware, stock markets around the world have fallen heavily in the last few weeks due to the Coronavirus and uncertainty around the impact on the economy and company profits. Whenever there is uncertainty, fear spreads quickly and the lack of answers, unknown impacts and constant news feeds understandably makes everyone nervous. This fear also builds on itself as it pushes markets lower as more people sell and rational thought goes out the window. There will be an economic and profit impact as the attempts to contain the virus reduce economic activity, however it will pass. The impact will be different depending on country, company and business and will be severe for those directly impacted but the market drop to date is implying a massive drop to earnings for all companies. The governments of Australia, China and the rest of the world are providing a massive amount of stimulus to support businesses and individuals to lessen this impact and ensure they weather the downturn. This will make a difference and importantly companies should be valued based on long term earnings not short term revenue drops. For many companies this will have minimal impact to long term earnings and some of your health care, technology and gold companies will do well through this period. This correction will highlight the value of diversification and investing in quality, sustainable businesses with low debt.

As we have seen through the GFC, SARS, Bird flu, dot com bust, and 1987 crash, at some stage it bottoms and the initial bounce is often large as the panic selling stops and the large investors come back in to pick up the bargains. In this time it is important to trust in the strategy that you have in place. It is important not to be a forced seller and that is why we have cash available to fund pension and regular withdrawals so that you don’t need to sell and can wait until the market recovers. If you are building your assets, the GFC showed us the significant benefits of continuing to invest through uncertainty as you are buying more cheaply and will reap the rewards as the market comes out the other side. It is not easy to stick to the strategy when you are bombarded with bad news and I encourage you to speak to your adviser to help you through this volatile time.

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