Diversification is the Answer; What was the Question?

While the current economic and stock market shock might be similar to others, and it’s tempting to imagine that investment values may follow the same trajectory as they did in 2008 or 1974, it’s essential to recognise that each of these investments is different.

As with previous shocks, there are still plenty of “unknowns” in the early stages; at the current time, there are almost too many “unknowns” to list here.

Headlines about stockmarket crashes may grab your attention, and the detail about the other asset classes is a bit dull. But beat with me a moment.

What we do know is that, as usual, the mainstream asset classes have reacted differently to the current situation, and we expect this to continue to be the case going forward.

Stock markets around the world have fallen in value, but there has been a notable divergence in returns for us in the UK, partly as a result of the weakness of Sterling compared to other currencies.

However, UK government bonds (gilts) have risen in value, as have overseas government bonds.

Meanwhile, corporate bond investors have only suffered minor losses, as interest rates have fallen and as a result of the global fiscal stimulus.

And, of course, if you held cash a month ago, its value won’t have changed (excluding the small amount of interest added).

It’s far too early to know how residential and commercial property might be affected. Still, it seems likely that the current economic situation will have a different impact on different types of property.

Our portfolios have always been diversified across asset classes, and, as a result, our clients have been relieved to find that things aren’t as bad as the newspapers told them they would be.

I’m afraid that we don’t know the answers to many of the questions people are asking (“Have we reached the bottom of the market?”, “How long will this last?” etc.).

But we do know that the best answer to most investment questions is “diversification”. It has served investors well since records began, and there is no reason to imagine that it won’t continue to do so.