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Why economic growth should recover

20 April 2020

5 minute read

As global share markets have plummeted due to the spread of the coronavirus pandemic, the question on many investors’ minds is whether now is a good time to buy. While we would always advocate time in the market rather than trying to time the market, we believe that now is as good a time as any to buy. Here, we explain why.

Who's it for? All investors

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice.

What you’ll learn:

  • The indiscriminate nature of the recent market sell-off
  • The platform to drive a rapid economic recovery
  • Why drip-feeding your investment may be a good option.

Indiscriminate sell-off

The recent market sell-off has been sudden and indiscriminate which is an indication of widespread investor uncertainty. Usually when the future growth prospects for the economy weaken, investors tend to sell risky assets more gradually which results in a less severe drop in the market than what we have witnessed recently.

Whilst the past performance or behaviour of investments is not a reliable indicator of their future behaviour or performance, a sell-off of this nature has often been followed by a reasonably sharp rebound as investors start buying back shares which they consider to be ‘bargains’. While we would certainly not claim to be experts in calling the bottom of the market, shares are undeniably cheaper than they were prior to the impact of the coronavirus. Without a crystal ball we cannot say for sure that they may not become cheaper in the short (or even long) term. However, we would expect (but can’t be certain that) an investment today to deliver a positive performance over a a medium to long term time horizon (at least five years).

A platform for recovery

March saw oil prices slump to their lowest level in 17 years, as demand for fuel was hit by work and travel lockdowns introduced in some of the world’s biggest economies as part of efforts to contain the spread of coronavirus as well as the recent production feud between Russia and Saudia Arabia.

Meanwhile, the world’s central banks have come together to slash interest rates and launch massive stimulus programmes to support the global economy. The combination of cheap oil, expansionary fiscal policy (how a government adjusts its spending levels and tax rates to monitor and influence the economy) and easy monetary policy (the use of interest rates to manage the money supply) all over the world should provide a platform for rapid economic recovery in the future.

However, even healthy and robust companies may still default as the global economy shrinks. Meanwhile, only time will tell if the massive stimulus programmes from the world’s central banks will be enough to support the global economy through this challenging period.

No one knows for sure when, or even if, a recovery may happen but for an investor with a medium to long term time horizon, now is as good an entry point as any to get into the market. This is because markets tend to move in anticipation of what the data will reveal. What this means for an investor is that markets will move higher on expectations of an economic recovery before this is actually reflected in the underlying data.

Conclusion

While we think now is a good time to enter the market, there are risks. To help control the risk of another sell-off in the market, investors could consider ‘averaging-in’ their investment. By slowly drip-feeding in your money, any movement in share prices has less effect on the value of your investment. In other words, by regularly investing you’re less likely to fall foul of any volatility. However, it is important to consider the dealing costs incurred with regular investing particularly where only small sums are involved. For more information, you can read about the benefits and drawbacks of making regular investments.

Where to invest

To benefit from an expected economic recovery, we would advocate taking a long-term diversified approach to investing. The Barclays Ready-made Investments are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These multi-asset funds invest across a range of asset classes and regions, offering a globally diversified one-stop solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone.

Smart Investor offers a wide range of funds, and our Barclays Funds List may help you to narrow down the wide range available to invest in. These funds are selected by Barclays investment specialists and, based on our research, they’re the funds that have built solid reputations and established sound investment processes.

We don’t offer personal investment advice so if you’re unsure you should seek that independently.

Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.

All of these investments can fall in value as well rise; you may get back less than you invest.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

Find out more about our Ready-made Investments

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances. Smart Investor doesn’t offer personal financial advice. If you’re not sure about investing, seek independent advice.

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