In many ways, it’s easy to forget that the Covid pandemic was only five years ago. After a run on Prime Ministers in the UK and the economic fallout of the Truss Government’s ‘mini budget’, it may feel much longer ago that the Coronavirus gripped the world.
For most Britons. Covid reshaped life permanently. Sadly, this may include the loss of a loved one or ongoing health problems after the pandemic. On a more positive note, the pandemic may have provided a better work-life balance, as working from home became the norm during Britain’s two Covid lockdowns.
At AFH, for example, most colleagues enjoy the flexibility provided by fusing working from home with working in the office. If you’re an investor, you probably remember the impact the pandemic had on the markets as it spread around the world.
According to Morning Star, the stock market downturn that followed the outbreak was one of the most severe in recent history. That said, it wasn’t all bad news, as the markets have broadly bounced back.
As the fifth anniversary of the pandemic approaches, discover three powerful lessons it could provide for investors. Before you do, let’s look at the impact of the outbreak on the stock market and global economy.
The pandemic had dire economic consequences around the globe
Many governments around the world implemented lockdowns to deal with the pandemic, meaning most national economies were left counting the cost. Indeed, in January 2021, the BBC revealed data from the International Monetary Fund that showed the global economy had shrunk by 4.4% in 2020.
Small surprise then, that the markets became extremely volatile. According to the report, the Dow Jones and the Nikkei saw significant downturns as the number of Covid cases soared in the first months of the crisis. The FTSE 100 fell by 14.3% in 2020, its worst performance since the 2008 financial crash.
That said, there were some winners. While shares in airlines, hospitality companies and retail businesses plummeted due to lockdown, many technology companies prospered as people needed to work, shop and find entertainment at home.
Yet in the years following the pandemic, many of the industries that struggled during Covid have bounced back. In 2024, for example, the airline industry reported record revenues as passenger numbers beat pre-pandemic highs.
With this in mind, let’s now consider the lessons investors can learn from the pandemic, and how it could help you to get more from your money.
1. Block out the ‘background noise’
During the pandemic, it would have been easy for investors to feel overwhelmed by the endless barrage of negative news, otherwise known as ‘noise’. If care isn’t taken, this noise can stoke anxiety about your investment’s performance, which could lead to a decision you later regret.
Whether the noise has been created by geopolitical events, the economy or pandemics, it’s important to try to block out as much of the noise as possible. Instead, it’s usually best to focus on your long-term financial goals and stick to your investment strategy.
If you’re in doubt, a financial adviser could help, as they can explain what’s happening with the stock market and what your best option might be.
2. Keep calm when the market becomes volatile
While short-term volatility should always be expected when investing, when it happens it can be uncomfortable. Because of this, it can be tempting to sell your investments when the markets suffer a downturn, in a bid to limit potential losses.
In reality though, this could turn a paper loss into an actual one, which is why it’s often better to try to remain calm and hold on to your investments. Making a kneejerk decision to sell usually deprives your money of the opportunity to recover the losses when the market bounces back, which historically it’s tended to do.
In addition to this, as your money is still invested, it’s exposed to future growth potential which could boost your wealth over the long-term. To demonstrate this, you might want to consider the following graph, which shows the performance of the MSCI World Index between1 January 2020 and 1 January 2025.
The index tracks the performance of a basket of companies across 23 developed countries.
Source: MSCI World Index
Despite several downturns along the way, including a major drop in 2020 as the pandemic gripped the world, the index has increased in value. As you can see, if you had of sold your investments during the downturns, you could have locked in the losses and missed out on the subsequent growth.
Always remember that past performance of the markets is no guarantee of future performance, and you may receive back less than your original investment.
3. Always expose your money to the right level of risk
One of the most important aspects of investing is understanding the level of risk your money is exposed to. Generally speaking, growth potential is typically provided by the higher-risk assets within your investment, such as stocks and shares.
Yet these also have a greater exposure to potential losses when the stock market suffers a downturn. If you don’t have the financial buffer to absorb these losses, you may be forced to reduce your standard of living.
By understanding the level of risk that’s right for you, you’ll have peace of mind that your money’s exposed to as much growth potential as possible while keeping the risk of losses at a level you’re comfortable with.
This is something a financial adviser can help you understand, as they can assess your attitude to risk and confirm the level that’s right for you.
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If you’re considering investing or would like to discuss any that you already own, give us a call on 0333 010 0008. We would be happy to help. or arrange a no obligation meeting with one of our advisers.
Wednesday 12 February 2025