For many newer investors, the recent stock market crash will be their first experience of a big fall in the value of their investments, and this may have dented their confidence.
Data from the latest Moneyfacts UK Personal Pension Trends Treasury report, showed the impact of the coronavirus pandemic on global stock markets had caused the average pension fund value to plummet by 15.2 per cent in Q1 2020, the worst quarterly performance on record, even surpassing the falls seen during the global financial crisis of 2008.
So it is not surprising when Steve Webb, partner at consultancy LCP, says the biggest investor reaction he has seen is fear of further falls.
“Although those who sell up now are crystallising their losses, some people are so afraid of further losses that they would prefer to get out of the market now, purely, so that they can be certain of where they stand,” Mr Webb adds.
As a result, advisers are working many hours to reassure clients and maintain continued communication with their clients.
Market stress
Andrew Dixon, head of wealth planning at Kleinwort Hambros, says although he is not seeing clients looking to de-risk their portfolios, he acknowledges “it is still early days”.
Mr Dixon adds: “Every adviser needs to really understand their client’s objective. If you are a long-term investor with no need to draw on your investments, the conversation is likely to be different to a client who is living off their investment income.
“Inevitably, clients will want to talk about markets and the impact of Covid-19 but we also need to be clear with clients. We cannot control markets.
“I think more productive conversations are focused on reminding clients of their objectives and what adjustments, if any, are necessary to achieve them in the timeline set.”
In the wake of this crisis, it is possible a risk-adverse group of investors may emerge, as the reality that the world is more fragile than we may have thought, kicks in.
Tom Conner, director at Drewberry, says for advised clients, it is very common to build in market crash scenarios to stress test the likelihood of achieving future goals, so there is still concern but to a lesser extent.
“They key message advisers need to be communicating to their clients right now is not to panic,” he says.
Mr Conner points to one of the worst FTSE crashes in history, Black Monday in October 1987, to illustrate his point.
“By the end of the year, the FTSE was actually up by 6 per cent over the previous year,” he adds.
“Moreover, if you zoom out even further, taking a 30 year-plus horizon, you’ll see that the same ‘record’ crash is actually barely a blip overall.”
Long-term thinking
Pete Clancy, head of pension policy at Scottish Widows, adds: “Short-term ups and downs are to be expected and are a reminder to keep a long-term view on your investments where possible.
— to www.ftadviser.com
