JEFF PRESTRIDGE: Hold your nerve even as markets head south

Let’s not beat around the bush. Stock markets are in freefall, and if the doomsters are to be believed, there could be worse to come if the spread of coronavirus hits pandemic territory, causing the global economy to grind to a halt.

Already, some leading economists such as Nouriel Roubini are talking about potential stock market corrections between 30 and 40 per cent. 

Although Roubini’s views are more pessimistic than most, they should not be discounted. After all, he was among a small group of commentators to correctly predict the 2008 financial crisis.

Scary? Absolutely. Roubini’s advice is for investors to hedge their portfolios against the possibility of a crash by putting money into cash and government bonds – ‘and if I am wrong and equities go up by 10 per cent instead, that’s also OK’.

Of course, just because this eminent economist was right before does not mean he will be correct again. There are other respected experts who believe that provided the epidemic is soon brought under control – and does not hit pandemic proportions – the world economy can bounce back quite quickly.

Irrespective of whose crystal ball you trust, these are obviously worrying times for readers with shares-based Isas and investments held inside self-invested personal pensions. 

But panicking out of investments now, especially if your investment horizons are more long than short term, is not the right way forward for most investors. My colleague Sarah Bridge provides some sound ‘Don’t panic’ advice here and I urge you to read it.

Yes, it is prudent to look at whether your investments are sufficiently diversified – across all financial assets including the bonds and cash that Roubini likes. And as FundExpert’s Brian Dennehy advises, it can make sense for investors to set up ‘stop-losses’ on their portfolios so that if specific holdings fall in price to a certain level, they are automatically sold.

But if you are investing as most people do on a monthly basis, I suggest you carry on as normal, preferably across a range of shares and investments. The comfort of such a disciplined approach is that your contributions will buy more shares when prices dip. Experts call it ‘pound-cost averaging’. I call it common-sense. 

Finally, dividend income can alleviate some of the pain from sharp market falls. So ensure your investment portfolio has its slice of exposure to dividend-friendly UK companies and investment trusts.

For some of the country’s most consistent dividend-paying investment vehicles, take a look at the ‘dividend heroes’ listed on the website of the Association of Investment Companies (trusts that have grown their annual dividends every year for the past 20 years). If you don’t have internet access, drop me a line and I will send you the list.

I will give the final word on markets to reader Edward Browne who, regular as clockwork (every Sunday morning, just before dawn), provides me with his view on issues of great Personal Finance importance. His advice on the current meltdown? ‘Sit tight and buy into falling markets.’ ‘Am I missing something here?’ he asks. ‘It all seems like mad panic.’

Tax relief 

It appears fresh-faced Rishi Sunak, Chancellor of the Exchequer, has decided – for the time being at least – to put off further restrictions on the right of high earners to enjoy tax relief on their pension contributions. Hurrah, I say.

It also looks like he will resist the temptation to increase the tax applied to most insurance premiums. Another big hurrah.

So let’s hope that come the Budget on March 11, he will also announce proposals to boost the social care system so that people affected by the scourge of dementia are not forced to spend their life savings on care.

The marvellous Alzheimer’s Society is urging people to email their MP, asking them to impress upon Mr Sunak the importance of investing in the social care system. I’ve done it. You can too by following the link at alzheimers.org.uk. Hurrah if you do.