COVID-19 has turned the whole world upside down and many people have asked what must I do with my investments? All markets, local and global, has seen a significant drop in performance however this is nothing new when it comes to the investment market.
The peak of the All Share Index this year was on the 20th of January 2020. The level was 58 850.40. It then plummeted to a level of 37 963.01 by the 19th of March 2020. A total drop of 35.49% in just two months. Then it rebounded in a V-Shape to 49 874.51 by the 14th of April 2020, that is a bounce back of 31.37%. As of Friday 17/04/2020 the All Share Index closed at 49 134.65.
Most people ask what does this mean for my savings and my investments?
There are three ways of looking at it:
- Panic and run – Had you started investing at the peak and experienced the 35.49% drop, human nature might have kicked in and as an investor you were thinking of taking the money and running away to a safer investment. This is never the best option as this almost cements the losses on your investment value making it very difficult to make back those losses, over the remainder of the investment.
- Sit tight and stick with it – Had you remained invested through ups and the downs, you would have recouped a good part of the losses already in a very short period, as during the recovery the loss would have improved from -35.49% to -15.25%.
- Invest even more – A downturn like this is always one of the greatest opportunities to start investing. If you were to start a brand new investment at the lowest point, your return would have been +31.37% over a period of a couple of days, normally it takes years for your investment to show this level of return.
Yes but moving my money to a money market fund is always the best option in times of crisis, is a term we often hear in the investment market. However this is not always the best idea. Let’s take the crash of 2008 as an example, panic and fear kicked in and you decided to move your entire investment portfolio to the money market, as it provides you with safety and certainty. What if I told you that you would have had more money today had you stuck through it?
Below is an example of why it is important to stick with it through the good times and the bad times:
We can’t deny that this is a very difficult time and that it is human nature to start to panic when it comes to our hard earned savings. But stick with it, stick with your investment plan and remember, we are all in this together!