When you look at the headline figures of how investment markets performed in 2020, you may be worried about your finances. The impact of Covid-19, along with other factors, caused volatility within the market globally. Yet, despite this, your portfolio may still have made gains, Ryan Marshall, Independent Financial Adviser at Pembroke Financial Services, said.
FTSE 100 index fell 14.3% in 2020
One of the figures attracting attention is the performance of the FTSE 100. In 2020, it fell 14.3%, reports the BBC, making it the worst performance since 2008 when it slumped 31.3% due to the financial crisis. This time the fall is linked to the ongoing pandemic and Brexit, with a deal only being reached in late December.
The FTSE 100 is an index made up of the largest 100 companies listed on the London Stock Exchange and is often used as an indicator for the performance of UK listed companies. As a result, you may have concerns if you focus on only this figure.
Ryan said: “While the FTSE 100 performance may have affected your investments and pensions in some way, looking at the wider picture is just as important.
“In fact, according to the Guardian, 2020 saw world stock markets up 13%. As a result, your portfolio may actually have made gains in the last year despite volatility and the, sometimes alarming, headline figures. This is because your portfolio is invested across multiple assets and geographical locations. This creates a diversified portfolio. So, while one area may have suffered a downturn, others help to balance this out.”
That’s not to say your portfolio will never fall, investments always carry risk. However, diversification can help limit the amount of volatility experienced.
In addition to this, we use objective-based investment strategies when building portfolios for our clients.
What is objective-based investing?
“Objective-based investing is an approach that seeks to align your investment portfolio with your specific needs and objectives. Rather than simply investing in default funds, investments are customised to your needs and goals,” Ryan explained.
“This fits into the wider process of financial planning. Before you start investing, you need to spend some time thinking about why you’re investing. Perhaps you want to build a nest egg for children or want to be able to retire early. This helps tie your investment strategy to your goals, rather than simply focusing on generating the highest possible return or trying to beat the market, which may not align with your risk profile.”
For instance, if you’re creating a fund to pay for a child’s education, you may want to take a more conservative approach to investing, even if it potentially means lower returns. Rather than basing performance on investment values against the market, objective-based investment is judged on how it helps you achieve personal goals.
It’s an investment strategy that may change over time. For example, while you’re earning an income, you may focus on growing your investment value. As you retire, and your priorities change, adjustments may be needed so that your strategy now focuses on preserving wealth or creating an income for you. This is part of the reason why regular reviews are important, they help to ensure your investments continue to align with your aspirations as your lifestyle and objectives change.
What does this approach mean for you?
2020 highlighted how quickly things can change in the investment market. At the beginning of 2020, who would have predicted that a global pandemic would affect how businesses operate? Or during the midst of the sharp downturn in March, that markets would bounce back as quickly as they did?
Ryan added: “While it’s difficult to do, tuning out the short-term market movements can help you focus on the bigger picture. You should invest with a long-term goal in mind and your investment strategy should reflect this. Having faith in your investment plan can help you focus on the long-term plan and reduce the urge to tinker with investments, which can have a negative impact. An objective-based investment strategy is built with your goal at the centre, keeping this in mind can help you have more confidence in investments, even amid volatility.”
Please contact us to discuss your investments, whether you want to create a strategy or would like to review an existing one.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.