One Year Later

It’s almost a year since we saw the fastest decline in equity prices for decades and none of us need reminding why. A year ago, COVID-19 had truly taken its grip on the world, with countries imposing strict lockdowns that ground economies to a halt.

Who’d have thought that a year later we would still be stuck in a form of lockdown? However, this time there clearly is light at the end of the tunnel in the battle against the impact of COVID-19. 

The world of investment tends to view these shock events as a “sale on the great companies of the world”. We know that not many people would be framing temporary decline in this way. That’s not to say that we knew how and when things would get better, but deep down we knew it would – we’ve been there before, and we’ll be there again. 

However, optimism does not sell newspapers. The front pages on 10 March 2020 sported headlines such as ‘Stock markets in biggest fall since 2008 as virus fears trigger panic selling’ and ‘Black Monday: Fourth biggest city fall as virus panic hits markets’. 

What has transpired since that day? The MSCI World Equity Index is up 31% (75% from the 23 March 2020 bottom). The panicked investors who sold out of perfectly positioned portfolios to “wait for things to settle” have sacrificed years of gains and independence. You cannot ‘time the market’ and if anyone tells you they managed to sell out and buy back in at the right times, it’s pure luck or more likely a story to help save face! 

Wealth is built through global equites and maintained through good behaviour – it’s that simple. Never underestimate human ingenuity, and the market’s ability to be forward-looking. Yes, we need to manage risk, but all portfolios need an element of equity to provide long term growth and beat inflation. Equity portfolios are a collection of all the ‘great companies’ in the world who employ the most talented, innovative people who drive continued growth and profits. This will never change. 

Right now, there’s optimism in the air, and the prospects for recovery look good. The vaccination programme in the UK is going exceptionally well and we can see light at the end of the tunnel and a return to some normality from the summer onwards. The forecast for GDP growth this year is around 4% and for 2022 is 7%, which will be a record year of GDP growth if it happens. These forecasts are good for equities. We are at the beginning of a recovery that should last for years. Consumers have been saving and have a high appetite for spending once lockdown restrictions are removed. Ultra-low interest rates will support the economy for now and Central Banks are likely to let inflation run a ‘little hot’ for a while maybe up to 3%, with the longer-term target being 2%. Remember, you need to be getting returns above inflation to be achieving ‘real growth’ so holding money in cash for now is guaranteed to lose value against inflation. 

The record deficit was touched on by the Chancellor in his budget and some plans are now in place to pay back the high levels of debt with more to follow but it appears that the problem will be addressed from 2023 onwards. The Treasury starts a tax review on 23 March 2021 so we are expecting tax changes to come but not in the short term. 

Finally, here at gpfm we continue to strive in what has been a difficult year. The team have been fantastic in adapting to their new working environment and delivering the highest levels of service to our clients. If you would like to talk to a member of the team, please don’t hesitate to get in touch over email at enquiries@gpfm.co.uk or call 01992500261. 

This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested. 

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About gpfm 

gpfm are an independent financial planning company dedicated to the provision of personal, professional, and objective-driven advice for our clients. We have been awarded the Chartered Financial Planners title by the Chartered Insurance Institute for offering high quality, independent and informed advice that meets the needs of our clients.