With the global economy currently in the midst of a crisis following the rapid spread of coronavirus, Quilter International and Quilter Cheviot have produced a guide for UAE investors to use when investing through volatile times.
Economies worldwide have been heavily impacted by the range of measures designed to stem the spread of Covid-19. The global drop in crude prices has had further effect on oil producing nations such as the UAE and wider GCC.
While a relaxation in some of these measures over the past few weeks in the UAE, such as the reopening of malls at reduced capacity, signals that we may be entering a new phase of the pandemic, there is likely to be volatility in the markets for some time to come. Quilter's guide features seven principles that investors should consider when markets are in turmoil in order to keep their heads when others are losing theirs.
The recent market volatility has highlighted the importance of investing in line with your personal comfort levels and goals. There is no one-size-fits-all solution."
- Get advice
Every single investor's needs are different and, while the points below are good general tips, there's no substitute for a plan that's tailored specifically for you.
The role of a financial adviser is to get to know you and your attitude to risk versus reward; and then to navigate you through your investment journey. What's more, in turbulent times, advice helps you take the emotion out of investing and provides an objective view.
- Make an investment plan and stick to it
It is one thing to have a target, but a sound financial plan can be the difference between simply hoping for the best and actually achieving your goals.
It helps you to stay focused on your long-term aims without being distracted by short-term market changes. The best way to formulate your plan and ensure it stays on track is with a professional financial adviser. They will talk to you about what you want to achieve for you and your family, your current situation, and your attitude to risk versus potential rewards. As well as tailoring a plan specifically to you, they can monitor its progress and recommend ways to keep it on course.
- Invest as soon as possible
The earlier you invest the better. The magic of compounding allows investors to generate wealth over time, and requires only two things: the reinvestment of earnings and time. The difference of just a few years can make a massive difference to your end result.
- Don't just invest in cash
When markets are volatile it's a big temptation to put all your investments in the relative safety of cash. It may seem like a safe bet. However, at just 2.5% inflation, an investor would lose nearly half of their purchasing power over 25 years.
Every investor does need at least some part of their funds in liquid investments in case of an emergency, but low risk usually leads to lower returns. For anyone with longer term investment plans, it needs to be supplemented with investments in other asset classes that offer better capital growth potential and beat the perils of inflation.
- Diversify your investments
When markets are fluctuating wildly, it's all too easy to worry about the performance of certain investments while forgetting about the bigger picture.
Similarly, when one asset class is performing poorly, others may be flourishing. A diversified portfolio including a range of different assets can help to iron out the ups and downs and avoid exposing your portfolio to undue risk.
- Invest for the long-term
Many people believe that knowing when to buy and when to sell is the secret of successful investing. The truth is that no one knows with certainty when markets will rise or fall. Trying to time the market is not only stressful, it is very seldom successful.
It‘s far better to use time to your advantage. The sooner you can start investing, and the longer you can invest, the more likely you are to have the potential for healthy returns and achieve your financial goals, regardless of short- term blips.
- Stay invested
When markets are volatile, it is often tempting to exit the market or switch to cash in an attempt to reduce further expected losses.
However, it is impossible to time these movements correctly as no-one has a crystal ball to predict future movement, so being out of the market for just a few days can have a devastating effect on returns. Make a plan, stick to it, and don't try to time the market.
Paul Evans, head of Middle East & Africa at Quilter International, commented: "It's natural at these times for some investors to get concerned, which only serves to make the situation even less predictable. The truth is that share prices invariably rise and fall but, for the long-term investor, this shouldn't need to be the primary concern. A financial adviser plays a huge part in helping their client make the right decisions at the right time and warding them against any knee-jerk reactions."
Mark Leale, head of Quilter Cheviot's Dubai office, added: "The recent market volatility has highlighted the importance of investing in line with your personal comfort levels and goals. There is no one-size-fits-all solution. Time spent ensuring that you clearly set out your objectives and defining your attitude toward risk and reward is an essential part of the process before investing."
Leale went on, "Equally important is that your adviser, investment manager or both, recommends an investment solution that matches your profile and that this is continually monitored for you, alongside ensuring that your objectives have not changed. It is only through following these steps that investors can have the peace of mind that any fluctuations in their investment value are within their tolerance levels, protecting them from the inclination or need to sell at the wrong time."