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The ongoing health crisis is having a strong impact on the global economy. Governments of the main countries affected by COVID-19 have announced an unprecedented series of measures to enable the various economic players to cope with this unique situation and to ease the economy back to recovery as quickly as possible.
Faced with these unprecedented and highly uncertain circumstances, investors may jump to irrational or hasty decisions based on fear as the media puts out a torrent of news stories, sometimes positive, at other times negative.
In this context, we feel that now is a good time to remind you of three of our investment principles to cope with the current complexity of financial markets.
1) Keep a cool head
Some behavioural biases prove costly to investors by causing them to act against their own best interests. Emotions can therefore become their worst enemy. They may feel compelled to react to uncomfortable or unexpected situations without preparing properly first. This is even more of a temptation when markets correct and the value of their assets plummets, taking them out of their comfort zone.
Regardless of the market scenario (not solely in the current crisis), it is important to invest in accordance with your own investment strategy and have a plan of action drawn up in advance. Setting rules helps you to act pragmatically by avoiding hasty decision-making that would negatively affect the value of your portfolio.
2) Invest regularly and take the long-term view
If you want to enter the markets gradually, one technique is to opt for scheduled payments.
This approach involves making regular, automatic payments at set intervals in order to build up your capital over the long term, while taking bearish and bullish phases into account. Known as “cost averaging”, this investment technique enables investors to invest a fixed sum at regular intervals, to smooth out their average purchase price over time and to limit the effects of any hard-to-predict crises that may occur.
Since market forecasts are highly uncertain by their very nature, those who remain invested, in the case of equity investments, also stand to benefit from the reinvestment of dividends.
3) Seek guidance from investment specialists
Invest? Sell? What is the best way and the right time to invest to grow your capital over the long term?
Investors are asking themselves plenty of questions at the moment, and it is not easy to make the right investment decisions amid such high volatility.
That is why Banque de Luxembourg is introducing a regular series of markets news updates for clients, complete with alerts and in-depth analyses from our experts.
More importantly still, because nothing can replace a face-to-face conversation, especially during a crisis, our private banking advisers are supporting their clients, taking their personal circumstances into account, bearing key investment rules in mind, helping them to stay the course in uncertain times!