Q2 Investment Update – Wild ride.

The last three years have given us two large market crashes (Q4 2018 & Q1 2020) followed by incredibly strong recoveries (Q1 2019 & Q2 2020). It has been a wild ride. Mixing your standard asset classes of equities and fixed interest hasn’t made a huge difference to your total returns in the period but has to your experience. The end return after three years is incredibly only 2% different between a 20% equity allocation and a 100% equity allocation. The 100% equity investor, though, will have experienced the thrill of 30% highs and shock of 35% losses along the way.

With the benefit of hindsight the way to outperformance was to have a higher weighting to the US, shunning the UK stockmarket and investing ethically. Ethical screens have saved investors from a falling oil price and tobacco as a sector going ex-growth. We will return to this subject in more detail soon. Of course past performance is no guide to future returns and it may be that the UK, unethical stocks and value stocks provide the outperformance in the coming periods. The reality is that no one knows and everyone should ignore quarterly commentaries.

The two lessons we can draw from this period is that timing the market is as much of a fool’s game as gambling against the house in Vegas and costs matter hugely.

Anyone trying to time their way out of the stockmarket in the last three years (and plenty did) will have more than likely come seriously unstuck and in some cases irreparably damaged their wealth.

Anyone paying 3% of their wealth to a discretionary manager/adviser (we still see plenty of these out there) have more than likely given away over half of their returns in the last three years. As humans we are just not built to understand compound interest and the negative compounding effect of fees being removed from a portfolio have a very nasty impact on long-term wealth.

If Coronavirus ends up being one of those global economic pivots we experience from time to time then there will be plenty of volatility still to come, as markets try to second guess who will be the winners and losers in the coming decades.

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