God people, what on earth is happening? I don’t believe that this is my second time writing about Coronavirus this week but when the Bank of England drops rates to historically low levels, I can’t help but comment! This virus is probably (most likely) going to cause a recession. Why?
Because when people are uncertain, guess what their endocrine systems do? Pump a ton of adrenaline into the system.
Adrenaline is the hormone that injects fear into the system, and then people do things like stop travelling, stop spending, pulling out money from the markets, and more. Some of these things are sensible- like cancelling travel and maybe stockpiling for a quarantine. However, things go north when the balance tilts from reason towards fear- you stop spending, and pull out money of the market (to do what, dare I ask?).
And guess what this causes? That’s right, a recession! And then the Bank of England has to make an interest rate move from already low interest rates. In 2009 we saw a structural change in how the markets respond to uncertainty (my Masters thesis was on this!), and I don’t want a virus to cause another structural change. But it doesn’t matter what I want. People will do what people do- panic!
So here are my top tips to keep you financially safe in this pandemic:
- If you’ve money lying around, invest in tracker funds or target retirement funds right now. If you're in the UK, and don't need that money till you're 55, put that money into your pension fund. - If you’re thinking of pulling out your money from tracker, retirement or pension funds, this is worst possible time to do so. - If you’re considering investing in individual stocks, don’t. Not now, not ever! - If you’re invested in stocks already, I would be worried particularly with industries that deal in travel and events in both the short and medium term. But ripple effects will continue across other industries. Should you pull your money out? I don’t know. No one does (even if they tell you they’re CFA and FRM and a bunch of other alphabets!), and t that’s why I hate stocks as an investment.
Of course I am not a qualified financial advisor, so won’t be liable if things go wrong. But then I am not making money from the advice I provide, so I have no reason to dish out things I don't believe in.