What a start to the year! A great one for headline writers – “Billions wiped off the values of pensions” was a common theme, as tabloids and even the BBC thrived on the uncertainty in the markets.
You would be forgiven for thinking that investments had lost all their value over the last six months. Of course it is not considered quite as newsworthy when markets rise. Have you ever seen the headline, “Billions wiped back into pensions”? I suspect not!
Nevertheless, it is not pleasant to see the FTSE fall by so much over such a short period of time. Not that anyone these days should have all their money invested in the FTSE. Typically, a balanced portfolio would have up to 20% in the FTSE and the rest in other assets, such as commercial property, UK gilts and corporate bonds which have risen significantly in value during the last few months. For example, during the last six months UK gilts rose in value by over 4% while UK commercial property has risen by nearly 5% and investment grade corporate bonds rose in value by almost 1%.
So once again the theory behind having a well diversified portfolio has proved its worth.
Long-term investment diversification isn’t a new concept. Five years ago in this column I quoted the book of Ecclesiastes which is packed full of little nuggets that still apply today. Is the uncertainty now over, has the storm passed, are we now in for a smooth ride from now on? Well, unfortunately there will always be uncertainty that will for a time spook markets, but that doesn’t mean that the long term investor should sit back and wait for the storm to pass. “Whoever watches the wind will not plant, whoever looks at the cloud will not reap” is a useful warning against being too cautious.
So remember, for the long-term investor (more than five years), buying when the market is low is a much more sensible strategy than waiting until the market is high before investing.
David Hill is a Chartered Financial Planner and Independent Investment Adviser at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814, email firstname.lastname@example.org or see www.hillsfinancialplanning.co.uk