There is no denying that there is likely to be substantial volatility in the markets for the rest of the year. We do not know whether the markets have hit a low and, if not, just how low the markets will fall. What’s more, this will not become apparent until sometime after the event has happened because, whilst certain events do instantly influence the markets, as a whole the markets do not reflect the economic situation as it is today.

Reviewing previous recessions and financial crises, it becomes apparent that the financial markets start to recover in the quarter before we start to see an economic recovery on the ground. Putting this another way, the markets seem to reflect what will be happening 3 to 4 months in the future. Consequently, even the most astute investor will only re-enter the market at the very bottom by luck.

Most people will decide to invest when they start to see the market bottoming out, or an upward trend beginning. Others will wait even longer for a definite upward trend to emerge. Even if an investor is lucky enough to decide to re-enter the markets on the very day they reach their lows, in reality, it will take at least 10 days to choose an investment, complete the paperwork, courier this to the relevant financial institution, transfer the money, and allow this to clear the receiving account. Only then will the broker make the trade. As such, the real questions that investors should be asking themselves are:

1.  What will be the effect of missing the first 10 or 20 days of the rebound?

2.  If I am in this for the longer-term, is it worth putting up with some short-term volatility in the coming months to

     ensure I do not miss the first weeks of the rebound?

There has been a multitude of research published which collectively shows that missing the 10 best performing days over any 10 year period reduces investment returns by over 25%. Likewise, missing the best 20 days reduces performance by over 50% and, even more incredibly, missing the best 30 days performance reduces returns by over 90%!

Other research has shown that in every stock market recovery since 1900, 25% of the first years returns occur in the first 10 days of the rebound. Those who miss the first 2 months of the recovery miss out on 50% first year’s returns. Putting these two pieces of research together, it is fair to assume that many of the 10 best days of market performance will occur in the first days and weeks of the recovery so the effect of missing the first 10 or 20 days of the rebound would be substantial.

As mentioned earlier in this article, there is no denying that there be further volatility in the near future but any future falls will only be temporary and will only hurt the investor financially if these falls are consolidated by selling the investment. Those who adopt the ‘wait and see’ approach will miss this volatility but they will also miss out on the substantial gains which have quickly followed virtually every stock market crash or correction.

So, if now is the right time to invest, what are the right assets to be investing in?

Surprisingly, the answer is 'virtually everything' as diversity is key for the non-institutional investor at this time. All the worlds markets are down 50%+ at present with many markets dipping to their lowest levels in over a decade during the last week of February. Whilst not every company will survive, all these markets will eventually recover and go on to new highs.

Because we do not know what companies (or even sectors) will boom and which will fail, buying shares is to 'hit and miss'. Buy shares in the wrong company and you could lose everything. Investing in a fund that holds a multitude of assets will ensure that the investment is not hurt by one company failing. Building a portfolio of such funds enables the investor to spread the risk as thinly as possible.

For example, the investor may choose to spread their investment between a European fund, a North America Fund, an Asia fund, a Latin America fund and a commodity fund. All of these funds will hold stock in hundreds of companies. Consequently, not only is the investor spreading their risk between several different markets (which are all undervalued), they are spreading their risk even further by holding shares in hundreds of companies within each of these markets  - all of which have been researched by market specialists.

Normally, if an investor were to purchase these funds directly, they would need to invest US$ 50,000 or more in each of the funds - and there would probably be a 5% upfront charge on each fund purchased. This means the investor would need US$ 250,000 or more to build a diversified portfolio of funds and they would need these funds to grow by 5%+ just to break even.

However, there are products available that allow the average investor access to such funds with investments as low as US$ 25,000 or with regular contributions from just US$ 150 per month. These products allow the investor to hold up to 10 funds at any one time, enabling the investor to build a truly diversified portfolio. Additionally, the funds are normally brought at institutional rates on the investors behalf which mitigates the 5% upfront charge!

Candour Consultancy advise on a wide range of such investments based on reputable offshore jurisdictions which ensure excellent financial and legal protection as well as tax-efficient growth. For more information on what product would best suit your personal circumstances, simply click here to arrange for one of our fully qualified consultants to contact you.  

Best regards,

Managing Partner

Candour Consultancy