What has Covid taught investors? Luke Davis, CEO of IW Capital, discusses what investors have learned from the ongoing pandemic.
Investing was one of the most unpredictable aspects of 2020 for anyone concerned with the market, whether that be a sophisticated portfolio or just a workplace pension. The stock market crash at the start of the lockdown and continued economic disruption has left many wondering what the future will hold, while soaring tech stocks have added further complexity to an ever changing market. But what has the Covid pandemic taught investors?
The overall effect of this period has led investors to reconsider what they are doing with their investable assets. To understand this shift, SME investment specialist IW Capital has conducted nationally representative research to uncover the sentiments of the UK’s investors.
They have found:
- 44% of investors are now looking to back UK-based companies rather than global firms – 9,629,000
- 45% of investors feel their ‘risk-appetite’ has increased due to Covid-19, as traditionally safe investments in big companies are no longer viable – 6,942,000
- 27% of investors are looking to invest in sectors created by the Covid-19 pandemic, such as PPE, social distancing equipment and virtual solutions – 5,674,000
- 19% of investors believe the coronavirus pandemic has opened more investment opportunities than it has closed – 6,278,000
Looking beyond the panic
Each period of disruption, like that felt last year, offers opportunity for companies to adapt quickly to the changing times and although there has been a lot of worry and negativity surrounding the new lockdown restrictions, we have to look to the positives with one of them being the roll out of the Covid vaccines. Working with both entrepreneurs and investors, there is a clear desire from the small business community for growth investment and to take a big step growth-wise this year. With a 12% increase in new businesses starting up during 2020 compared to 2019, 2021 is set to create some exciting investment opportunities for investors throughout the country.
The unexpected happens
This year has taught us that the unexpected does happen. Investors need to look to the future and prepare for the unexpected to improve financial resilience. This could be by having liquid assets or a rainy-day fund you can use if investment values fall, which is particularly important if you’re drawing an income from investments. Having options for when the unexpected does occur should be part of any investors financial plan and is something that has been brought to the forefront for many as a result of the pandemic.
Maintain a diverse portfolio
The Covid pandemic has had a far-reaching impact across a variety of sectors, however some industries have been affected far more than others, with travel and hospitality being forced to close for months at a time and unable to trade. In contrast, the pandemic has created opportunities for some sectors too, such as manufacturing and biotech. While a diverse portfolio will still have suffered volatility, it can help lessen the impact. Investing in a range of assets, industries and locations can help spread the risk. When one investment falls, another may perform better helping to create balance.
Don’t overreact to market volatility
When the pandemic first hit and the stock market plummeted, many investors began to panic and looked to sell shares in order to avoid potential future losses, but when investing, a long-term time frame and goal is so important. Short-term volatility is often smoothed out once you look at investment performance over a longer time frame. It can be frustrating to see that investment values fell in 2020, but when you look at performance over the last five years, for example, you’ll probably still see an upward trend.
Luke Davis, CEO of IW Capital said:
“Investing and investing wisely has never been easy by any stretch but this year has been particularly difficult for investors at every level. 2020 demonstrated the value of long term investing and future planning. The stock market crash in March triggered a real halt in investment, and although the market hasn’t fully recovered, there has been strong growth since November and in places in the US share indexes are actually higher than the last year.
“There have been winners and losers from each stage of the pandemic with sectors like travel feeling the true impact of the pandemic and others like online solutions seeing growth and opportunity in a time of financial turmoil. But, this is true of any world event and has forced investors to look to be more future facing.”