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Sideline investments at your peril

by Mark Andrews

ith COVID-19, trade relations far the financial effects might be more
Wand the rancorous US election muted than 08/09,” he said.
it has been an emotionally draining “The flipside is that compared to the
last nine months. GFC people have stress coming from
Global stock markets felt the brunt of multiple directions – financial stress to
uncertainty and volatility brought on their portfolio, their future income and
by the pandemic in March, but by and the economy itself – as people have
large rebounded strongly in the back lost their jobs and opportunities, plus
half of 2020. there is the health stresses, general
However, the wellbeing of people anxiety levels are higher than just the
around the world and full financial financial crisis.”
fallout from the health crisis remains An indication of the decisions
immeasurable. investors make on emotion was
Despite the unknowns, behavioural the tail-off of gold price and equities
finance experts Oxford Risk have towards the end of 2020, as progress
warned retail investors of the perils of was made on COVID-19 vaccines.
sidelining investments during a time of Gold’s status as a safe haven for
crisis. investment lost a little sparkle,
During the GFC, figures suggested however, the precious metal still
Greg Davies
that some retail investors had forgone remained a healthy $US1,815/oz
returns of an estimated 5-7% against ($2,463/oz).
an average yearly cost of 3% due to Oxford Risk chief executive Marcus
decisions made on emotions. Quierin said that during a crisis,
Oxford Risk, founded by Oxford investors were likely to focus too
University in 2002, said that given much on the present and on the detail,
the increased level of market volatility feeling compelled to do something
during the pandemic and the level even when sitting tight is the best
of emotional decisions made by solution.
investors looking to safeguard their The result; underinvestment,
portfolios, the cost in investment selling low or decreased portfolio
returns could be much greater than diversification.
SOURCE: Kitco
the annual 3% average experienced in the retail sector. “Many of these actions will mean that
When Oxford Risk head of behavioural finance Greg Davies investors turn paper losses into real ones. If they don’t need to
spoke to GMJ it was too early to estimate how much the withdraw money for immediate expenses, then the losses are
pandemic would cost retail investors, with a clearer picture to be only virtual… until they panic and make them real,” Quierin said.
garnered in the next 6-9 months. “The investments in the news are not your investments. Retail
“Some of those costs will be from people too fearful of investing; investors should avoid watching the markets day-to-day as this
people sitting on cash as a result of a crisis year and losing out will only increase anxiety to no useful end, and make you feel
forever more because they sit on cash. That cost of reluctance like you should be doing something, without any useful guidance
to invest is one of the biggest behavioural costs and it gets to what that should be. Long-term plans should be looked at
exacerbated after a crisis,” Davies said. through long-term lenses.
“If people sold out at the bottom of March and haven’t bought “Finally, investors should focus on what they can control. It’s the
back in since, they have lost a lot more than the average most ancient advice there is, and still the most important. You
numbers. In a crisis year we’d expect those numbers to double can’t move the market or predict when it’s at the bottom or the top.
from 3%.” You can postpone discretionary spending and use tumultuous
Davies said there was a chance the financial impact might times as an opportunity to take stock of your long-term financial
be smaller than the GFC because stock markets aren’t as plans. And you can control the opportunity to benefit from the
“calamitous” now compared to 2008/09. risk premium – the long-term reward for owning shares that has
eventually weathered every short-term storm yet.”
“[Global] markets have kept going up. So, maybe in this crisis so

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