Resurgent coronavirus cases and the increasing threat of localised lockdowns, are keeping global markets and world economies on tenterhooks. The unprecedented rise in the price of gold is testament to that.
Always the first place that investors go when uncertainty prevails, having broken through the $2,000 per ounce milestone, the yellow metal has continued its unprecedented rise. Silver is following closely behind, with recent records taking it past $28 an ounce.
These are ‘unprecedented times’ - as we keep hearing - and the rise and rise of these traditional ‘safe haven’ commodities, just adds weight to that.
As an investor, far from running for the hills, right now it is essential that you re-evaluate your savings and investments strategy and make sure that you are positioning them to - as far as possible - shield them from the uncertainty that, at present, shows no sign of abating any time soon.
1. Remain well diversified
The key, never more so than now, is to build a diverse portfolio with a mix of different investments that suit your attitude to risk.
A balanced investment portfolio will contain a mix of equities, government and corporate bonds and cash. It will also be spread across geographies and sectors. Now is not the time to second-guess markets and invest all your money on a hunch.
It may feel tempting though. Too many financial markets, such as the US tech-heavy Nasdaq, appear to be successfully swimming against the tide. The Nasdaq index, which has firmly refused to bend since the pandemic began, has now marched through 11,000 level for the first time - and just kept on going. The S&P 500 is looking equally bullish too.
But that is in the face of the sharpest contraction in the US economy since the war, with the gross domestic product (GDP), the value of goods and services produced by the American economy, down 32.9% in the second quarter, according to a preliminary estimate from the Bureau of Economic Analysis.
And you only have to glance at US Treasury yields to see the flipside to this story. A new low suggests that there are plenty of far more pessimistic/cautious investors who, much like the gold bugs, have a very different view of how this will all play out.
2. Keep calm and carry on investing
Maybe just the suggestion that anyone could even consider going with a hunch and investing the lot in the US tech sector sends you into a cold sweat (even in this heat). And you could be forgiven for holding the view that this is not a good time to be investing in the stock market at all. But you would be wrong.
If you are a little hesitant about investing this year you won’t be on your own. The uncertainty created by the pandemic has left so many aspects of our lives up in the air. Investing as you would do in ‘normal times’ can feel at odds with what is going on around us at the moment. But if 2020 has taught us one thing, it is that being prepared for the unexpected is so important.
That is why carrying on investing, whether in your portfolio or through your workplace pension, and keeping your post-pandemic plans intact is vital. The knowledge that one day normal life will resume and you will be poised ready to pick up where you left off, is not only reassuring but also puts you back in control.
Market volatility is a key reason why investors tend to hold back from investing during times of uncertainty. However, as we have seen time and again, longer term investments like your pension, have plenty of time to grow and iron out any ups and downs in the stock market. And a good way to take advantage of those ups and downs is to continue to invest steadily and consistently.
3. Take advantage of the ability to drip-feed your investment pot
Much like not putting all your money into one asset or sector, this is a time to drip-feed what you do want to invest. By investing steadily and regularly you benefit from something called pound/cost averaging where your smaller, but regular investments ride out any ups and downs in the stock market more effectively - buying you more shares or units when the markets are down and reducing the more costly ones when markets are high. That has an ‘evening out’ effect overall, which makes your hard-earned money work harder for you.
Looking beyond the short-term and keeping your money at work in the markets - even though it might feel extremely uncomfortable to do so right now - will help you shield your savings and investments from the worst effects of these very uncertain times.
Five year performance
As at 6 Aug
Past performance is not a reliable indicator of future returns
Source: FE, total returns as at 6.8.20, in local currency
The value of investments and the income from them, can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.