Speed of economic recovery
It seems a given that the global economy is heading for a deep recession, but how quickly it recovers depends upon the speed and success of plans to transition life and business back to normal.
The process is likely to be slow and setbacks are inevitable as governments across the globe roll out plans appropriate to levels of infection within their populations and the stage they are at in combating the virus.
Against this backdrop, what signs should investors look for before they can have confidence that the tide has turned and feel comfortable reintroducing risk to their portfolios?
The silver bullet is, of course, the discovery of an effective vaccine, however one should not count on seeing this any time within the next year.
In the absence of a vaccine, the development of new therapeutic solutions to help those that have been infected with the virus will help.
And as society starts to have hope that the most stringent lockdown measures might be relaxed, increased testing and the use of technology to monitor an individual’s potential contact with Covid-19 will facilitate some level of population movement while reducing the risk of fresh outbreaks.
Indeed, mobile apps in China and South Korea have helped ease the transition to greater public mobility: something which the UK government is also exploring.
Of course, when it comes to timing any re-risking within portfolios, much is subject to the risk tolerance of any individual investor, and the importance of maintaining a long-term investment horizon is never greater than under circumstances such as these.
Volatility
Volatility is likely to be a defining characteristic for markets for the foreseeable future and there is a good argument for continuing to drip feed funds into the market to take advantage of pound cost averaging.
Indeed, with market volatility operating at record highs this year, it has been important to spend as much time in the market as possible in an effort to reduce the risk of missing out on one of those irrational bear market upswings, of which we have seen many to date.
Despite the continued high levels of volatility in markets, there are some signs that it is now subsiding.
Should this trend continue, and notwithstanding the importance of remaining invested in markets where possible, investors should consider raising some level of liquidity in their portfolios to enable them to act nimbly and take advantage of new opportunities when the time comes.
This means having a cash warchest at hand to increase the speed with which investors can trade into the markets.
