Daily Investor Update 23 April
Posted by JSCFinancial on Friday 23rd of April 2021.
With the vaccine rollout continuing to progress and the gradual easing of lockdown restrictions, there appears to be some light at the end of the tunnel. With this in mind, we hope you and your close ones are staying safe.
The coronavirus pandemic has caused significant volatility in global equity markets and we continue to see larger daily falls and gains than we would normally expect. It is therefore really important that you think twice before taking any action over your pensions and investments.
The FTSE 100 index was up 0.6% yesterday (Thursday 22 April 2021) as optimism appeared to be gaining the upper hand after the strong falls earlier in the week. The earnings season in the United States appears to be providing sufficient good news to keep global equity markets at their elevated levels, with few unpleasant surprises thus far.
Germany’s DAX 30 was up 0.8% and France’s CAC 40 was 0.9% higher.
In the United States, the major equity markets reversed lower in a swift fashion after reports that President Joe Biden is proposing much higher capital gains taxes for the rich.
The Dow Jones 30 and S&P 500 both erased earlier gains and closed 0.9% lower while the Nasdaq was also down 0.9%.
Bloomberg News reported that Biden is planning a capital gains tax hike to as high as 43.4% for wealthy Americans. The proposal would hike the capital gains rate to 39.6% for those earning $1 million or more, up from 20% currently.
Whatever you are invested in, we’d like to remind you about the following key principles.
Stay invested – as you have seen global equity markets fall and the value of your own investments fall as well, it is natural that some of you will be thinking whether you should sell your investments and move to cash or some other “safe haven”. Our strong message to you is stay invested, focus on the investment objective that you set with your Financial Adviser at outset and trust the process. History shows that as night follows day, global equity market recoveries follow global equity market falls and it is damaging to miss out on the recovery days. The following chart shows the performance of the FTSE All Share over the last 20 years, between 31 March 2001 and 31 March 2021, and the impact if you missed the 10 best days. The cost of missing these 10 best days would have been over 3% a year (Source: Omnis Investments).
Understand your attitude to risk – we know that you will have discussed your Attitude to Risk and your capacity for loss comprehensively with your Financial Adviser. We are delighted that this process appears to have really worked during this extremely short-term volatile period.
If you are a Cautious or Balanced investor, you have been protected from the extreme falls of global equity markets. In fact, if you look at the average of all Cautious funds in the market (using the IA sector – Mixed Investment 20% to 60% Shares), a typical Cautious investment will be up by more than 6% since the start of 2020, compared to the FTSE 100 which has fallen by nearly 4% (Source: FE Analytics as at close on 22 April 2021).
For Balanced (using the IA sector – Mixed Investment 40% to 85% Shares), a typical Balanced investment will be up by between 10% and 11% since the start of 2020 (Source: FE Analytics as at close on 22 April 2021).
Diversify your investments – if you are invested in Openwork recommended investments in line with your Attitude to Risk like the Openwork Graphene Model Portfolios, Openwork Portfolio of Funds and Prudential PruFunds, your investment is diversifed which means it invests in a wide range of different asset classes.
Different types of investment (asset classes) and regions of the world all perform differently. Diversifying your investment by spreading it across many different asset classes and regions of the world means that, when certain segments aren’t performing as well, others in your portfolio are likely to be doing better and so will help protect the value of your overall investment.
Buying low – when you invest, you are always trying to buy low and sell high. For many, now may be a good time to consider increasing your investment. While trying to time a market bottom is difficult, history tells us that you do not have to wait long, if you invest slightly before the bottom, before your investment is back to its original value. As the chart below shows, investing 5% before the market bottom has, on average, added just 3 days to an investor's recovery period.
In such unprecedented times, it is important to know that your hard-earned pension savings and other investments are being looked after. The Openwork Investment Committee is monitoring your investment closely. While none of us can stop short-term market falls, we do fully expect global equity markets to recover. We cannot predict timescales but if you do not need your money now, we believe you will be rewarded for staying invested.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
Past performance is not a reliable indicator of future performance and should not be relied upon.