Yes, Donald, we got yippy

Well, flipping heck, this week has put hairs on the smoothest of chests as global stock markets went on a bender.

After continued falls to start the week, on Wednesday afternoon, the S&P 500 posted its largest gain since the global financial crisis in 2008, shooting up by a staggering 9.5% in three heady hours. For context, that was the third largest daily gain since the Second World War. The tech-heavy Nasdaq rose over 12%, its biggest gain since the turbulence of the dot.com crash in January 2001.

Tariffs on most countries were paused at the baseline rate of 10%, with the exception of China, who are embroiled in a dangerous “My Mahjong is bigger than yours” spat with the US.

Why? According to Trump, people were “getting a little bit yippy, a little bit afraid”. No sh!t! Donald! That is how non-billionaires react when we see the value of our pensions and ISAs decimated overnight, and face the imminent prospect of higher prices at the tills. Supposedly safe US Treasury bonds also fell in a ‘dash for cash’ by the Big Guns, but gold smirked its way through the chaos, like the class swot.

As more Wall Street giants came out predicting a US recession, Trump’s (temporary?) Wednesday u-turn was made necessary by the falls in the bond market (which send the US Government’s cost of debt soaring as US credibility shatters) and was facilitated by the scapegoat of China, who remain the core focus of his trading ire and enable him to keep face, whilst staging a partial retreat. Unfortunately for Trump, China owns a ton of US bonds – if they sell these, it would be a disaster for him, which is a very uncomfortable financial boot on his neck.

After Wednesday’s retreat, euphoria and stock price boom, came renewed falls on Thursday, a reminder that this is far from over and we should all expect the volatility to continue.

My Fifth Rollercoaster

I was asked to comment on Warren Buffet this week for a national paper. Why is this investing legend such a legend?! One key advantage he has is experience, the lived knowledge that ’this too shall pass’.

I'm old enough to be able to recite most 80s songs verbatim and this also means I’ve lived through 5 market tumbles (which I can remember), which makes it easier to remain calm. The first was the Crash of 1987 - although I was doing my O’Levels and more interested in Keith, part-time C&A model and school hunk.

Then the painful one for me – the dot.com crash in 2000. I lived in Australia at the time, working for Merrill Lynch, and borrowed about half of my annual salary to buy tech stocks. With silly names. I spent nearly two years sweating it to repay those losses. I also remember walking past a man in a suit, sitting broken and sobbing on the steps of the Australian Stock Exchange, a very human demonstration of the power of markets when they turn. I can still see him today.

In 2008 we had the Global Financial Crisis, slightly muffled for me as I had a 6-month-old baby and was living through the fog that is 5 hours’ sleep a night.

More recently, Covid-19 hit in the relatively early days of Boring Money. Given that our clients are investment companies who come to us for investor data, insights and product testing, we had an immediate blow to the P&L as these companies stopped any discretionary spend for a few months, and spent most of their time working out what Teams was and how to manage an operations team remotely.

I also recall vividly making tons of videos telling people to be calm and to sit tight. And that it would all come up again at some point. But one day, after over a week of falls and fairly acute global panic, I vividly remember that little voice in my head saying, “Yes, but what if this time ISN’T different?” It wasn’t.

This week was my fifth big dip. It doesn’t necessarily get any easier to stomach. And yes, Donald, I felt a little bit ‘yippy’. But I have seen things recover before and there are buying opportunities when markets collectively panic.

I moved some cash into the markets on Wednesday morning, using some of my new tax year ISA and pension allowances, just parking it into the iShares Global Tracker (Core MSCI World) ETF for ease. I’m not sure if this was the right time, and arguably I’ve moved a bit prematurely. But I did access this at about 17% less than I would have a few months before. Which with a long-term perspective, felt OK.

A golden rule - try to avoid being a forced seller

A key difficulty for retail investors in these markets comes for retirees who sell down smidges of their pensions periodically for a retirement income (this is called ‘drawdown'). You must want to scream when people like me write about the ‘long-term’. The biggest rule of investing is (I think) not to put yourself in the position of needing to be a forced seller when markets are low. And so where possible we need to look to cash or any other income streams, at times like this. Dividends (check out income funds), cash accounts, rental income, eBay the grandkids… whatever you can find. On our site, we've got an article that suggests some places to look for help with retirement planning, if it’s giving you the heebie-jeebies.

But for those younger readers, and this is especially a message for newcomers and less confident investors, put this week down as a notch on the investment bedpost. The only thing I can promise you is that it will happen again, at some point. But no-one knows quite when.

Have 3 pots in your mind for savings – some rules of thumb

Have one for short-term emergencies and life not going to plan. This should be 3-6 months’ cash in an easy access account.

Then there is a medium-term pot for things like buying a flat, a wedding, an amazing holiday, or other goals in a 2-5 year window. You do not want to risk being a forced seller here and so a lower-risk blend of cash and some shares makes sense.

And then there is the long-term stuff. Like pensions. Junior ISAs. Long-term ISA savings. When market dips happen, as they have this week, you need to put on your armour, ignore the yipping in your stomach and consider topping up if you can.

The very best strategy for most of us is little and often. Set up a direct debit. Chip in monthly. Across the rough and the smooth. If you don’t feel confident about what you're doing, use a robo adviser or pick a ‘multi-asset fund’. Or a global Exchange Traded Fund (you can see March’s best-selling ETFs here for ideas). And then lose your online trading account password.

Volatile markets highlight timing

A quick note for any curious fund holders who may have noticed portfolio valuations seemingly being unresponsive and slow to update to market swings this week. A fund is a single investment vehicle made up of many different shares. These collective pools of investments are totted up daily and allocated a price, called a ‘unit price’. (This was my first ever finance job, back in 1999, when I was a unit pricer for Salomon Smith Barney in Melbourne, and it was the most boring thing I have ever done in my life!)

Most funds calculate a unit price at midday every day (this time is known as the ‘valuation point’), although it can differ for some global funds given time differences. And there is a ‘cut off’ time for trading, typically 11am. So, if you buy a fund at 10am on a Monday, you will get the unit price for Monday which is calculated as at midday that day. If you buy at 1pm, you will get Tuesday’s price. These time lags explain why fund holders will see delays in portfolio valuation updates, noticeable in volatile markets, and this is a key difference between a fund and an Exchange Traded Fund, which is priced live and bought and sold like a share throughout the day.

Over and out for today. Things of course may look wildly different when markets open in the US again, so channel your inner Zen and ride out the yipping!

Holly