GeneralInvestmentPersonal Finance

Coronavirus and its effects on the Stock Market

We’ve had a significant number of queries recently about coronavirus and its effect on the stock market and people’s portfolios. We’ve set out our thoughts below on the effect on the stock market, as well as how to plan for such future events.

(For all our coronavirus-related personal finance articles please see here.)

Stock market effects

Markets tend to be over-exuberant with good news and over-correct for bad news. Markets are ultimately a reflection of human psychology after all.

Our personal investment philosophy has always been to avoid this short-term noisiness and just invest in good solid companies or funds.

If you hold for 5-20 years and continue investing regularly, that’s where you see the best returns as then you cancel out the short-term irrational choppiness of markets and benefit from compounding returns.

The coronavirus market meltdown has meant one thing though – stocks that we have liked or a while, are much cheaper right now. Shell for example is yielding ~11% at current prices. There’s a risk it cuts its dividends if the wider business suffers greatly admittedly, but it hasn’t cut its dividends since WWII.

So if you have any stocks on your shortlist now might be a good time to buy. For stockbrokers we like and  recommend AJ Bell.

As ever, please note the above are our general thoughts on state of affairs. For specifics, please talk to a financial advisor.

In short, have a long-term mindset and ride things out.

Plan your portfolio

One thing to come out of this global pandemic is that people, particularly new investors, have seen the volatility that the stock market can bring.

In a bull market, it’s really easy to think nothing can go wrong and to just keep tucking away into shares or funds.

Whilst the general stock market trend is upwards in the long term, this outbreak is a reminder that it’s worth having safer products in your portfolio.

Fixed-income products provide a good safety net. These are products that do what it says on the tin: they provide a fixed return.

From an Islamic perspective, this can come in multiple ways. The most popular and accessible ones are savings accounts and sukuk. You can take a look at our halal investment comparison page and select the ultra conservative and conservative views to understand which investments fit the bill.

Future Planning

What recent events do bring to the forefront of one’s mind is the temporariness of this life.

We’ve seen the panicked states of people who have been rushing to stock up on essentials, but we should plan essentials when it comes to our financial lives. Death, for instance, has a number of financial considerations which most people don’t plan for.

For instance, are there debts you have that other people don’t know about? Did you wrong someone earlier on in your life (even as a child) and need to seek forgiveness? Have you made your funeral arrangements?

Writing a will is a great way of sorting out these issues and ensuring that assets don’t get lost after your death. Check out our definitive guide to wills in the UK here.

 

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  • Salaam. As someone new to investing in stocks and shares (as in, completely new and own none), would it be right to assume that now would be a good time to get started? Any advice? Jzk

    Reply
    • Maybe, maybe not. Nobody knows! Pros: you could be able to buy quality stocks at cheap prices. Cons: you may experience volatility and get frightened.

      Overall, I’d say if you have a long-term mindset and are confident in not being flaky (i.e. panicking and selling if you end up 30% or more down) then the general trend of the stock market is upwards.

      Reply

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