Keeping a positive attitude in time of crisis

Published on Friday 24 October 2008 19:45

AFTER a month that has seen the collapse of several large financial institutions and some of the biggest one-day swings in stock-market history, it's no surprise that investor confidence is currently at an all-time low. The severity of the banking crisis has also taken many financial professionals by surprise.

In times of crisis, most people tend to ignore the good news and focus on the bad. They develop a mind-set that sees the negative side of every news item and assume that the worst case scenario is inevitable – ignoring the potential long-term outcome and worrying only about the next day and/or the next week's results.

The values of equities, corporate bonds and UK commercial property have all fallen over the past year, meaning that even a well-diversified portfolio has failed to deliver.

So where do our IFA competitors go from here? The majority of them are, quite rightly, keeping a cool head and looking at their client's original remit and objectives. While there is a huge amount of negative sentiment in the marketplace, it's important not to lose sight of Angus MacDonald's long-term objectives and time horizon – ten years. Several IFAs have increased their exposure to absolute return funds to protect the downside risk and others have switched some assets into fixed-interest markets in anticipation of cash returns falling over the next 12 months.

The main message that is coming through – loud and clear – from their commentaries is that their original portfolios' asset allocation are still very much in line with MacDonald's objectives and that they will still achieve the required outcome in the medium to long-term through a broadly diversified portfolio of investments, despite the current market doom and gloom.

• Raymond Ellis is director of Scott-Moncrieff Wealth Management.