Batten down the hatches or go out in the storm?

How to grab opportunities during times of crisis.

The coronavirus outbreak has caused extraordinary disruption, and the economic consequences of the pandemic are becoming increasingly clear. The past months have been a time of uncertainty and worry for us all, yet individual experiences vary hugely.

Some of us have been furloughed or are facing redundancy. Some are wondering what the turmoil will mean for our pensions or retirement income. And still others have been relatively unaffected and might have spare cash available due to lower expenses.

Yet even those who are familiar with ‘black swan’ events and understand market volatility may be questioning the best way to make the most of their money.

Overcoming these concerns can clear the path to the opportunities that are available.

Knowing the right time to act

As restaurants, bars and shops were closed, airplanes grounded and holidays cancelled, consumer spending plummeted over recent months. That has left some people with significant extra disposable income and none of their usual ways to spend it, notes Melloney Underhill, Marketing Planning & Analytics Manager at St. James’s Place Wealth Management.

“People have had money back from annual trips that aren’t happening. It’s not as if they will simply be able to take more holiday next year, so they now have a lump sum they can use,” Underhill says.

On the face of it, extra money in the bank should represent an opportunity, perhaps to shore up your own finances. “Think things through in terms of the best way to use what you have,” suggests Tony Clark, Head of Retirement Marketing at St. James’s Place Wealth Management. “You could invest in your pension, pay more money off the mortgage, put it into an ISA, set up children’s funds and so on.”

Or it might be the right time to act on good financial intentions you never got around to. “You may have plans to pass money on at a later date, but if the opportunity presents itself now, why not help out family members who might be struggling? All these things might be in your long-term financial plan, but not seen as priorities right now,” Clark says.

Whichever route you take, leaving your money to sit in the bank might not be the best way forward given that interest rates are at historically low levels and are likely to stay that way for some time to come.

Overcoming anxiety

However, the anxious and uncertain environment has fostered a reluctance to take advantage of those opportunities. Faced with bleak economic forecasts and fear-inducing headlines, there can be a tendency to batten down the hatches and avoid making decisions.

“There may be more people keeping their jobs than losing them, but that doesn’t stop the worry,” Underhill points out. “The more hesitant people become and the less they spend, the harder it will be for businesses to keep going – it all becomes self-fulfilling.”

It’s also well established that any decisions we do take tend to be coloured by emotional and cognitive biases. These can be exacerbated by the level of ‘noise’ in situations such as the current crisis, ultimately distorting how we feel about risk.

As investment guru Benjamin Graham wrote: “The investor’s chief problem – and even his worst enemy – is likely to be himself.”

Your home may be repossessed if you do not keep up repayments on your mortgage.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested. An investment in equities does not provide the security of capital associated with a deposit account with a bank or building society.

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James Bowers is a member of Sovereign Wealth LLP.

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Sovereign Wealth Limited is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website www.sjp.co.uk/products. Sovereign Wealth Limited is a Limited company registered in England and Wales, Number 07115386. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.