By anyone’s standards 2020 has been a very strange year so far. Lockdown seems to have gone on forever, we’ve all put our plans on hold and now, somehow, it’s July.

With everything that’s been happening, it’s easy to write off 2020 as a loss, but there’s actually quite a bit to be positive about. The stock market picture isn’t as bad as we may think and besides, lockdown has provided some broader insights that are well worth the time to investigate.

Havoc on the stock markets?

Yes, of course. There’s no way a global pandemic wouldn’t have an impact, but there are several things to bear in mind here. When we talk about building a long-term investment plan designed to get you through good times and bad, we mean it.

Those ‘bad times’ aren’t’ just hypothetical – they’ll happen, but we need to keep them in perspective. Values fluctuate, that’s why sticking to your plan is so important, but remember that equities tend to show strong performance, generally around 9-10% in the long term (around three times the rate of inflation).

As we point out so often, the long-term is where we should be setting our sights. Overwhelmingly, the evidence shows values recover and the general trend over time is an upward one (so long as you’re prepared to dig in and wait out the more nerve-wracking episodes).

Remember too that recoveries don’t make nearly as good headlines as crashes. That may sound a little flippant, but it’s true that markets are recovering and the reporting devoted to that is dwarfed by the stories of impending disaster. Perspective is important; for example, here’s the performance of our Moderate WRAPS portfolio (60% equities, 40% bonds).

Over the last three months, benchmarked against the Consumer Prices Index (CPI) measure of inflation, performance is down a little. The same is true over six months, but if we look at the year, returns far outstrip the benchmark – even allowing for recent market movements – this portfolio has still returned double the rate of inflation over three years.

If you joined our recent webinar you’ll know we discussed the bounce-back of recent weeks and things have improved further since then (if you missed it you can view it here). As a final note, the stock market isn’t the only game in town when you’re trying to understand the economy; it’s one piece of the puzzle, but far from the full picture – the stock market and the health of the economy often show low correlation.

Naturally, downturns are challenging, just as upswings are positive, but what we should be concentrating on is your overall wealth plan and making sure you’re extracting every benefit from every part of it.

Adding value elsewhere

Lockdown has given us all pause for thought – for you to reappraise the future and for us to see where we can add value. Our last round of rebalancing happened just before the market took a tumble, and the previous year’s strong performance of equities meant we were able to help you make the most of that performance. Looking beyond that, we’ve been helping clients to make the most of allowances that can easily go unused, which is essentially giving money away.

People are often clued-up about using their full ISA allowance each year, but what isn’t considered so often is that Capital Gains Tax (CGT) follows a similar ‘use it or lose it’ model. We’ve turned a negative into a positive by reducing clients CGT liability. Using CGT ‘harvesting’, we’ve helped clients to use up their annual CGT allowance each year, harvesting those gains to reduce their future tax liability.

Looking further ahead

In the last few weeks most of us have spent a good deal of time thinking about our future, but what about the future of our families and the generations that follow? Estate planning may not be an attractive subject but turning your attention to your Will, any Trust arrangements and even the notion of Power of Attorney now serves two purposes. Firstly, it means you’ll be sure your money goes to the right people and that they won’t be unduly burdened by Inheritance Tax. Secondly, it gives you peace of mind that you can now enjoy – knowing those arrangements are taken care of means you can get on with living the life you want.

At Wealth Matters our partnership with experienced legal firm Solidus means we’re in a position to help you get that peace of mind with the right plan for the future. We’ll be running a webinar about it on Thursday 23 July, which you can sign up for here.

The importance of rebalancing

Rebalancing is often spoken about but not so well understood. The part about getting back to your original asset allocation generally makes sense, but once we get into selling things that are doing well and buying those that aren’t, questions come up. In the video below, we’ll hear from author and consultant Jason Butler on why rebalancing is important, why it makes sense and how it’s a key part of the lifelong process of investment. We are currently doing a detailed review of our rebalancing process and hope to be announcing some exciting changes to this in the next six months.

The idea of rebalancing may feel like something we need in life at the moment, not just in investment. While we’re flagging the positives of lockdown, we’re well aware of the negatives. This has been an immense struggle for everyone, none of us expected it and hopefully we’ll never have to face anything like it again. Let’s remember that the purpose of having your life plan in place is that whatever comes your way, you’ll be able to deal with it and push on to the successes that we want to celebrate with you.