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Keeping a calm investor mindset

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Here we go again.

Yes – four words that have no doubt sprung to your mind a lot lately.

Because for many investors, the last few weeks have certainly felt like a classic case of ‘déjà vu’. Ever since 24 November 2021 to be precise – when, yes, you’ve guessed it, Omicron first reared its ugly head.

A new and ‘radically different’ strain of Covid, Omicron’s emergence shocked markets from the off. The globe descended into a familiar sense of panic over its potential impact. And investors were thrust back into a world of uncertainty.

Granted that this time around, some countries – like the UK – have been more prepared for another spike of Covid cases. And perhaps because of this, market volatility hasn’t been as sharp as what we saw in March 2020. Even so, fears over Omicron being more transmissible, and resistant to the vaccine, have kept the investment world on tenterhooks. Eagerly waiting and watching its every move.

A stark reminder

Over the past few weeks, you’ve probably seen headlines about markets falling – usually, it’s much bigger news when they go down compared to when they do well.

Much of the market falls in November and December were triggered by concerns over whether the vaccine would be as effective against Omicron. And, if it wasn’t, what that might mean for global economies. Especially with some countries quickly re-introducing tougher restrictions.

Recent events have been a reminder – if it was really needed – that we continue to live in uncertain times. And that nothing should be taken for granted.

The fact of the matter remains

Before Covid threw its latest ‘Omicron’ curveball, the virus had seemingly taken more of a back seat in many parts of the globe. Largely thanks to the phenomenal vaccination success – which, in turn, helped to drive markets and the economy forwards throughout most of 2021.

But what we’ve learnt from the past few weeks is that we can’t be too complacent. Covid is an unpredictable virus which continues to surprise us.

Let’s not forget that Omicron isn’t the first strain to cause a stir. In March 2021, the Delta variant popped up – dominating headlines and triggering widespread ambiguity. And for many months, its rapid spread cast a huge shadow over regions like Europe.

As we look ahead, it’s likely that other new strains of Covid will emerge.

The UK government has pulled out all the stops to take further control – including ordering millions of extra vaccines and striking deals with vaccine developers, to fight new strains. But what we need to remember is that, for other parts of the world, immunisation is still a long way off.

Until we have full global immunity, new strains are likely to keep evolving. And Covid may continue to have a hold over markets for some time.

Don’t panic, though

We appreciate the last two years haven’t been easy for investors.

And when the going gets tough, a natural urge might be to panic and run for the hills. Agreed, that sounds dramatic – but it all stems back to our prehistoric fight or flight instincts.

For thousands of years we’ve used these to protect ourselves. Great when physically running from danger – but maybe not so great when it comes to investing.

Because when our natural urges get in the way, this may cause us to lose perspective – and make all sorts of decisions that could prove detrimental to our investments. Not least our over-arching financial goal.

As Covid continues to frustrate and perplex the investment world, you may be eager to do anything you think might help your investments. Like invest in a different fund or move away from markets completely. Especially if other investors seem to be doing the same thing.

But the reality is that once the current climate starts to become clearer, you could miss out on valuable opportunities. In fact, many of the best stock market periods have tended to follow some of the worst days. Although past performance isn’t a guide to future returns.

Let’s take the 2008 credit crunch, for example.

At the heart of the crisis, market uncertainty escalated - the FTSE 100 suffered it's worst year on record - dropping 31% in value over 2008.

Yet in 2009, the same index recorded a gain of 22% – its best annual performance since 1997. And continued to rise over the years that followed. In short, those who stayed invested in a UK FTSE based fund would have benefited much more than those who'd jumped ship at the bottom of the market.

The best course of action for these individuals was to do nothing and allow the investment to recover.

Stay composed – and focus on the bigger picture

Keep calm and carry on.

Yes, this well-known phrase is a perfect example of how to react when markets fall.

A good thing to do is remove any emotion you’re feeling. Ignore the short-term noise – and stay focused on your over-arching, long-term investment goal. The reason why you invested in the first place.

Sticking to your investment plan is key.

It’s best to refrain from making any rash changes, and if you’re thinking of doing so, always speak to your financial adviser first.

As challenging as things might seem at times, remember – this is all part and parcel of the investment journey. Covid may be an unusual, never-experienced-before situation. But the market fluctuations and ambiguity it brings – well, that’s nothing new.

Ask yourself this

What matters the most? The returns you see today – or the returns you’ll see in five years’ time?

Investing is a long-term process. It’s all about commitment and riding the wave of ups and downs. And generally, the longer you stay invested, the better.

While we can’t predict the future, history has shown that market uncertainty always exists – and investments have the ability to recover over time.

Whatever impact Omicron might have on our lives, and on markets, over the coming months, it’s unlikely to be as significant as the initial onset of the pandemic proved in 2020. As always, we will be closely monitoring how markets react to these events, and continue to update you in future Skipton Insights and in your quarterly reports.

Kieran Ellis, Skipton’s Technical Research Specialist

Economic and market conditions experienced in the past may not be repeated in the future. The opinions and analysis provided are for information only and do not constitute financial advice.

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