A financial planning strategy for coping with the Covid-19 stock-market fallout

Financial markets are suffering due to the Covid-19 virus. These are very worrying times for people all over the world from a personal perspective and also in terms of the impact on our financial planning strategy.

The value of a flexible and robust financial plan has never been more important than now. Whilst few will completely avoid any adverse consequences, there are a number of actions we can take to minimise the negative effects on our financial planning strategy.

What, therefore, are the issues we should address, and how can we protect ourselves from the worst of the ‘Covid correction’?

Financial planning strategy tips

  • Don’t ‘panic sell’: We are all too aware of people ‘panic buying’ in the shops and the damage this does to supply chains and the availability of certain essentials. The panic selling of investments also has a detrimental impact on markets, whereby the more people sell, the further prices will fall. Historically, stock-markets have always recovered from major corrections; it is often best to ‘sit tight’ and wait for the crisis to pass. The chart below shows how world markets have responded to corrections over the last 40 years.
MSCI World Index
  • Consider changing your income strategy: If you are drawing an income from equity funds, you should consider suspending this for the time being. As markets recover, money that remains invested will benefit from this action. You could, perhaps, switch off income withdrawals from your pension plans in favour of taking income from cash reserves. When markets turn around, this can be reversed, and cash accounts replenished from realised equity gains.
  • Don’t hide behind the sofa: As unappealing as it may be to check on your portfolio, there might be changes you can make which will limit the damage. You should also try to reposition your assets as part of your financial planning strategy so that you can take full advantage of the recovery when it comes.
  • Investment opportunities in specific sectors: It is likely that there will be changes to the way in which we conduct business, as more and more individuals experience the benefits of working from home and companies endeavour to replace people with automation. Technology is the driving force behind this change; funds that invest in Artificial Intelligence will inevitably benefit from such a transition. Investment in Biotech companies may also be worth considering. A vaccine for Covid-19 will be found at some point in time. The reward for the pharmaceutical industry will be significant in terms of share price and market development opportunities.
  • Avoiding unsolicited calls: We should all be on our guard against fraudulent behaviour. Always hang-up on cold calls, especially those from salesmen offering shares in companies who have allegedly discovered miracle cures or make bogus medical claims. We would also advise investors to stay away from unregulated, esoteric investment schemes. Unfortunately, Covid-19 related scams are already in our midst. The current situation is a gift to boiler room scammers, don’t become a victim!

After the 2008/9 banking crisis, there was much talk of ‘equities being finished’; fortunately, this has not been the case. Even after the recent stock-market correction equity indices are still nearly 3 times higher than the low point of 2009. Having said that, there is no secret recovery formula for investment portfolios that have ‘taken a hit’ over the last month.

Talk to your financial adviser. We are not alchemists, but we can work with you to find the best route forward and help make sensible changes where necessary. It may be that you have to completely rethink your financial planning strategy; it’s always good to be able to do this with someone who has the necessary experience and qualifications to give an unbiased opinion.

A good adviser will consider your whole situation and ensure that your financial planning strategy makes sense and is in context with your personal circumstances.

Finally, we should do everything we can to protect ourselves and our family from the worst of this terrible virus. Let’s listen to experts and be careful!

Des Cooney: Des Cooney is a renowned International Pensions expert with over 27 years experience in pension and wealth management. His main specialty is in the transfer of UK pensions to QROPS and International SIPPs.