By Rob Madddison-Joss of Hillcrest Wealth Management

We will experience several coronavirus-like market shocks in our lifetimes, especially now that we’re living longer – which is why it’s so important to stick to a few basic investment principles.

The headlines in the first week of the new decade were dominated by the impeachment of President Trump, fears of a new war in the Gulf and the UK’s impending departure from the EU.

COVID-19 was barely on the international radar. But by the end of January, the World Health Organisation had declared it a global health emergency.

It was quickly evident that the world was facing what’s often referred to as a black swan event.

This, according to theorist and writer Nassim Nicholas Taleb, who coined the term, is an event that is rare and devastating in its impact, and seemingly emerges from nowhere – but with an element of retrospective predictability.

The coronavirus pandemic falls very firmly into that category.

Economic crises are more common than a birthday
Yet there is a paradox at the heart of black swan events. While each is by definition unique, they occur with relative frequency. The first decade of the century brought us at least two, in the form of September 11 attacks in the US and the 2008 financial crisis – with the latter in particular having long-lasting, global implications.

For investors, there is a vital lesson in this. Because while each black swan event is a one-off, anyone investing for the long-term will experience several such events that can have serious consequences for economies, markets and investments.

And as average life expectancy increases, so too will the number of unique events and market shocks that investors must endure. There are now some 15,000 centenarians in the UK and a baby born in 2020 has a 50% chance of living to 100, according to the Office for National Statistics.

There will be more economic crises in our lifetimes. During the last 100 years, there have been more 10% market pullbacks than an annual birthday. Everyone knows a birthday will come; think of volatility the same way.”

The importance of principles and a long-term plan
Unlike a birthday, however, we don’t know when volatility and market shocks will happen. That’s why it’s essential for investors to have basic principles in place that they can stick to over the long-term, says Gardner.

Those principles include having at least three months of cash set aside in order to cover short-term needs and provide peace of mind.

It’s also about saving regularly and benefiting from pound cost averaging. By drip-feeding money into investments, you are buying units at different times rather than at one price, so that you buy more when prices are low and benefit when they rise.

Then there’s the golden rule of diversification.

“This means having a well-diversified portfolio of equities and bonds invested around the world across different sectors and companies, rather than trying to predict which sectors and regions will do well,” Gardner explains.

Investors should also use the various tax wrappers available in order to make their money work harder and review their plan regularly to keep it on track.

It can be hard at times like this, when there’s so much ‘noise’ around investment markets, for investors to make the right decisions for good long-term outcomes.

That’s why speaking to a financial adviser and tapping into their expertise is so important. A financial adviser can stop you from making poor decisions and taking your eye off the long-term.

If you want the long-term perspective on the current market uncertainty, or to know more about our Investment Management Approach to the 100-year life, contact Rob Maddison-Joss

 on rob.maddison-joss@sjpp.co.uk or www.hillcrestwm.co.uk

Rob Maddison- Joss is an experienced wealth management consultant who has worked with some of the most respected names in investment and finance, having had a long and successful history within the investment industry.

Hillcrest Wealth Management is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products.