Finances can be confusing, so we have created a series of free, educational events, books and online resources to help build your knowledge and confidence.
At times like this, it is very easy to get caught up in all the negativity around us. It seems as though there is nothing but bad news coming at you from every angle, and it is easy to let that become all consuming. Whether you are worried about your investments, your business or your health, the current landscape can feel bleak, but it is important that we become stronger and practice mental positivity and look for ways to make things better.
As a business we will work to find ways to provide our service to you remotely, so that you can still be confident with your wealth and gain some reassurance from our expert team. But what else can be done to get through this in the best shape possible?
Instead of focusing on your own worries, focus on how you can help the people around you. Whether in your business or in your personal life, providing value to others will not only help you identify ways that you can get through these times in better shape, but they will help you feel better about it too. A good example of this is restaurants and café’s offering to deliver food to people’s homes and home support services helping the elderly with their shopping.
Exercise creates endorphins that result in you feeling significantly happier. Whether you go for a walk, run or ride, or you do some yoga or a workout at home, getting active for at least 30 minutes each day will lift your spirits and keep you in good health. There are loads of free classes online that you can follow too, so maybe now’s the chance to try something new? Nelson Mandela credited exercise as the key factor that helped him to remain positive throughout his 27 years of incarceration. Even if you are house bound, you have infinitely more space and resource than he had in his tiny cell in Robben Island.
The healthier you are, the better you feel and the more resistant you are to illness, so you need to stack the odds in your favour. Eat plenty fruits and vegetables, the more colours the better. Consider taking some vitamin supplements, Vitamin B complex, Omega 3 and maybe wheatgrass, which is believed to boost your immune system. The healthier you are, the more positive and the more protected you will be!
With anything like COVID-19, it is easy to get depressed by the cancellation of things you have been looking forward to: trips you have been planning and people you were going to see; not to mention the plans you had for your business. Spend at least 10 minutes each day doing something to improve your wellbeing. Whether that be meditating using the Headspace App, writing a list of things you are grateful for, or discussing the best things that have happened in the last day/week/year. Creating positive a mindset can have a powerful impact on the rest of your health.
Bad news is bad news! In times of crisis, it is easy to keep referring back to the news for the next wave of misery. This will continue to bring you down time and again. As a result, be a better gatekeeper to your mind, and pick your bad news strategy. Maybe commit to only look at the news once or twice a day, and at a set time each day. Not first thing when you wake up, and certainly no where near the time you want to go to sleep. That way you can keep more positivity in your mind whilst still getting the news you need to survive.
If we are not growing, we are dying, so we need to always keep learning. In times of crisis, this is even more important. Get a good book that will help you grow as a person and read/listen to it every day. Instead of diving into meaningless rubbish on TV, take the time to consume stuff that will actually benefit you, and the people around you. You’ll feel a whole lot better for it.
Even under lockdown, stay in communication with the people you care most about. One of the biggest regrets of people on their deathbed is that they didn’t keep in touch enough with the people they cared most about. Don’t make the same mistake. In this day and age, that can be via video conferencing with someone on the other side of the world (or street) or in person; stay in touch and connect with the special people in your life. In a world of social media, video calls and advanced telecommunications, now’s the time to embrace technology and stay in touch.
In addition to writing down each day what you are grateful for, another way to feel grateful is to watch educational documentaries and films. Recently I have watched ‘1917’ and ‘Unbroken’, both incredible war stories. It puts a lot of our problems into perspective. There is so much great content on iPlayer, Amazon & Netflix, we don’t need to waste our time-consuming lots of stuff that creates no value in our lives. A little of course is fine; sometimes it is good to switch off. But the more we can find our minds with the right stuff, the better shape we are in to deal with the world around us.
At Efficient Portfolio, we want to help our clients in everyway we can. If you need our help, even it is far beyond the realms of financial planning, please just ask. We’ll do our very best to help. Stay happy, healthy and safe.
At Efficient Portfolio we have taken the decision to minimise the risk of COVID-19 affecting the service we provide to our clients by working from home. Whilst some external meetings will still happen in the office, and for the time being reception will remain manned, the rest of the team are already working remotely. We are in the fortunate position that we are a very technology focused business, and that means working from outside of the office is perfectly feasible.
As such, we don’t expect our service levels to be affected. We already use video conferencing for meetings, so this will be extended to more client meetings going forward. If you need any advice as to how you could do this better in your business, please don’t hesitate to ask.
Market-wise, we’re living in truly unusual times. It may not be fair to call them unprecedented - markets have experienced and recovered from plenty of previous extreme sell-offs - but each sell-off is distinctive in its own way and this one is unique in its sheer speed.
Source: John Authers, Bloomberg Points of Return 17 March 2020
The above chart doesn’t cover off the falls in the S&P 500 yesterday which were extreme, with the S&P 500 down another 12% (its biggest one day fall since 1987).
The comparison of recent falls with 1987 is apt. Although the falls of 2000/2003 and 2007/2008 were bigger overall, this has been an incredibly rapid fall, unmatched by any in in terms of speed since 1987:
Data Source: Financial Express and PortfolioMetrix, as of end of Thursday 12 March 2020
The current sell-off is, of course, accentuated in the above graph given it comes off a higher base (and the 1987 fall is likewise de-emphasised because it comes off a lower base). In order to see the scale of percentage changes accurately, you need to look at a chart plotted on a log-scale:
Data Source: Financial Express and PortfolioMetrix, as of end of Thursday 12 March 2020
The reason for the sell-off is extreme uncertainty. Markets are frantically trying to price the effects of countries going into lockdown to slow the spread of COVID-19. A good measure of uncertainty is the VIX Index (also known as the ‘Fear Index’) which measures the implied forward 30-day volatility of options on the S&P 500 and which reached its highest ever level at yesterday’s close.
The bad news is that the economic effects of these lockdowns and consumers pulling back on spending, due to uncertainty, is going to be severe. We should expect many countries, including the UK, to go into a technical recession (2 consecutive quarters of negative GDP growth) and this to severely impact global growth for 2020.
The good news looking forwards is that markets are already more than pricing in a recession. There is also plenty of scope to limit the duration and severity of it by bringing the virus under control (as has already been successfully achieved in China and South Korea) and policymakers taking decisive monetary and fiscal policy action to limit the effects of social distancing. We are already seeing concerted action here. Central banks, including the US Federal Reserve and Bank of England, have cut rates aggressively and restarted QE or brought in new funding schemes to ensure liquidity. And governments are in the process of launching significant fiscal spending to assist people and hard-hit industries, such as airlines, pubs and restaurants. The headline of the Financial Times online as I write this is: “UK to launch coronavirus rescue package for business”. We should expect the US to agree to a host of measures to do the same very soon.
We are in a bit of a ‘messy’ period as the world adapts to a new situation, but although the short-term outlook is uncertain, the longer-term one is actually far less so. We will get through this.
The PortfolioMetrix portfolios continue to be impacted by the market’s falls, but diversification continues to moderate the magnitude of those falls with even the riskiest PortfolioMetrix portfolio still significantly better off than the FTSE 100 year to date:
Data Source: PortfolioMetrix, as of end of Monday 16 March 2020
Unfortunately, given the magnitude of the falls in the market, we are in the situation where some clients in riskier portfolios are starting to receive their second 10% drop notification for the year. PortfolioMetrix, Efficient Portfolio and our other DIMs all continue to monitor and manage portfolios carefully. They are not making any knee-jerk changes as portfolios remain fundamentally sound, but they are rebalancing clients back to target risk weights where appropriate i.e. making very modest purchases of quality equity funds at these lower levels.
And although we remain very careful about the short-term, we are not losing focus on the long-term. We do expect markets to recover eventually and we are positioned for this too. Jeremy Grantham, one of the founders of asset manager GMO, put it well in March 2009 when he stated: “the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before.”
We would also stress that the FTSE 100 is a pretty flawed index with lots of concentration risk in oil and other commodities as well as banks (amongst other problems) - the PortfolioMetrix portfolios are far better diversified and constructed, and we would expect them to deliver far superior risk-adjusted returns than the FTSE 100 over the long-term.
History can be a useful guide, but it’s also helpful to focus directly on the concerns of today. Clearly, there remains a lot of uncertainty around the spread of coronavirus and how it will affect day-to-day life and the wider economy over the next few months. We do not know the answer in the short-term and markets could fall more from here. But if we cast our minds even one year forward it is difficult to see COVID-19 being a major problem for humankind. Although more serious than flu, it is perfectly possible for human society to function if we got to the stage of having ‘cold, flu and coronavirus season’. It seems scary now, but we will adapt and markets, as they are wont to do, will also recover.
Whilst we appreciate this is a scary time, it is vital that we put our tin hats on and sit it out. The only way you can lose money in a market fall is by selling investments at the low. Either that, or if all of the largest companies in the world have gone bust. Whilst there will inevitably be some business casualties, most of which would have been struggling prior to this crisis, it is unlikely that the governments will let sound companies go to the wall given this is a worldwide issue.
Sit tight, and if you have spare cash, even consider investing more. The best companies in the world just went on sale!
Pound Cost Ravaging
For those of you in retirement or drawing an income from your investments, there is something you can do to minimise the impact the market fall has on you. I appreciate this isn’t possible for everyone, but if you have savings in cash, which most of you will, or the ability to spend less, research shows that the best thing you can do is to pause or reduce the drawings from your investment in periods of market uncertainty. The same research also showed that trying to reduce your investment risk at times like this had little or even negative effects on your long-term wealth.
As you draw an income at the point at where the market falls sharply, you lose a larger percentage of the total portfolio than you previously would have. When the market rises again, because there is less money invested to benefit, your portfolio does not fully recover. This is known as ‘Pound Cost Ravaging’!
As a result, if you want to protect your retirement funds, the best thing you can do is to minimise or stop your investment drawings, thus allowing your portfolio to recover. As we saw in 1987, this could be as quickly as by the end of the year!
What should you do when markets crash?
As part of our ongoing improvements to client services, we are delighted to announce the launch of two, new portals. Designed to help you keep a better track of your financial planning, these free portals will give you far more simplicity, control and transparency when it comes to your wealth.
After speaking with our clients, we have learnt that keeping up to date with your financial planning can be time-consuming and complex. It can often feel that there are countless documents to review and it can be a struggle to know where to even find them. Even straightforward tasks, such as updating your current address, can seem like a hassle.
In addition to that, security has also become a key concern of both us as a firm and our clients. Sadly, unsecured email is a prime target for fraudsters, who can use this medium to steal your confidential information and use it to illegally try to access your funds. This issue is something that we have been tirelessly trying to resolve for many months, and thankfully we have now found a reliable solution.
You will be aware that you currently do have one portal provided by your selected platform; that will still remain, as it is useful for providing trading history and tax reporting. However, we do not feel that this portal alone is sufficient and will automatically upgrade your service to include some new and beneficial features.
1. The Personal Finance Portal (PFP)
Following on from the introduction of our new back-office system, Intelligent Office, we are now able to offer our clients the Personal Finance Portal. This innovative system will give you a clear insight into what you hold, enable you to easily update your information and offers an exceptional level of security. Not only will this portal be used for secure messaging, it will also provide information on non-platform based accounts, house all documentation, such as plans and Suitability Letters, and provide live values.
The PFP offers the following:
A secure messaging service, so you can safely send sensitive information to Efficient Portfolio, without worrying that this may be intercepted by fraudsters. The team will also use this service when they contact you about your financial planning.
A consolidated client area, where all of your policies, documents and personal information is stored in one, easy access place. This means that you no longer need to sift through numerous documents to find what you are looking for.
The ability to update and upload your information. Whether you’d like to amend Your Portfolio Explorer to reflect some lifestyle changes, or upload a new policy that you’ve personally implemented, the PFP gives you full control. Efficient Portfolio will happily do this on your behalf, if you would prefer.
The PFP app, so that you can check your portfolio when you’re on the go or away from home. This is great if you need to make a withdrawal whilst you’re on holiday, or quickly need to check if you’re covered on your insurance policy.
PFP Premium, for those that would like to add their banking information onto the portal. PFP Premium allows you to synchronise your accounts with the portal, so you can review your current balances and transactions at the same time as you are reviewing your planning. There is a small charge for this optional service of £2 per month.
We will enrol all clients for the free PFP Portal, however, if you would prefer to use the PFP Premium Service, the process is very simple. Simply contact the office on 01572 898060 or email email@example.com and we will send you a link. You will then need to follow the straightforward online instructions to register.
If you need any support in setting up your account, we would be more than happy to help. We can offer help though a live chat and screen sharing service, or simply over the telephone. As a brand-new service, we are anticipating some ‘teething issues’, but the team will also be able to make any necessary changes to your portal as required.
2. The Investor Reporting Portal (IRP), provided by PortfolioMetrix
Our Discretionary Investment Managers, PortfolioMetrix have just launched another portal to help our clients to quickly gain access to the detailed, quarterly performance analysis of their investments. This portal will show you all of your quarterly reports, for investments managed by PortfolioMetrix, and provides client specific data that has been used in your investment planning, but most importantly it will show you the values and growth rates of your funds.
Most of our clients wait until their Client Review Workshops to view this information, but now you can access a range of charts detailing investment elements such as your asset allocation, performance over time and where your investments sit in the Efficient Frontier.
We believe that this portal will place you in a much more knowledgeable position throughout the year, and will enable both you and us to quickly raise any concerns and find solutions.
You will be automatically enrolled for this free service, but please contact the office on 01572 898060 or email firstname.lastname@example.org if you have any questions.
We hope that the introduction of both the PFP and the IRP Portals will help you to get a better handle on your financial planning, and allow you to clearly see how your money is performing. We will be on hand to help you through the registration of both portals, but if you have any questions along the way, please do not hesitate in contacting us.
EP Help If Isolated
Being based in Oakham since our move from Seaton 2 years ago, we have very much come to feel part of the community. With that in mind, we want to continue to help our community of clients, and the people around us at what is clearly a very difficult time.
If any of you do have to self-isolate but are struggling to get access to food or other necessities, let us know. We’ll do our very best to help you if we can.
At Efficient Portfolio, we regularly host 3 different seminars. We have taken the approach to turn these into webinars, so that people can access them more easily. They are as follows:
The Leaving a Legacy Lunch: Helping people post retirement leave a legacy for their loved ones whilst protecting their wealth for their own future.
The Dream Retirement Dinner: Helping the people in the lead up to retirement create their own dream retirement.
The Entrepreneurs Guide to Financial Planning: Helping business owners better understand how they can financially plan their future and protect their business.
If you, or anyone you know would like to watch one of these webinars, you can do so by clicking here. This is a great way for people you know to get a feeling of how we work, how we help people in specific situations and what they can do to create a better financial future, so please don’t keep them a secret!
It has featured previously in The Efficient Wealth Update, but there couldn’t be a better time to revisit ‘The Rational Optimist’ by Matt Ridley. This is not about being blindly optimistic, but it is about being an optimistic realist. By learning to take that approach, you will find you go through life a lot happier. If you haven’t already read it, I suggest you make a point of reading it now. It might just keep you sane through these difficult times.
The first step in achieving your goals is to discuss your current concerns with one of our qualified Financial Planners.