Market uncertainty

As the coronavirus crisis begins to recede and the country tries to return to some kind of normality, the very likely prospect of a widespread economic recession now looms.

When extreme losses take hold, so-called “circuit breakers” are triggered, particularly in US indices such as the S&P 500. But what are these circuit breakers, and why are they activated? Stock markets in the USA have circuit breakers to act as a break on ultra-panicky indices. In times such as these they become an increasingly implemented measure to prevent the total collapse of share prices.

How to react when markets tumble is something of a million-pound question. But there are things you can do, and lessons to be learned when indices turn red.

There seems little chance that the Bank of England will hike interest rates any time soon. And this is not good news for savers. It will reinforce the very modest rates currently available from cash deposit accounts and is a clear reason to look again at the merits of instead investing your money in the markets.

A recent survey conducted by Schroders suggests that Brits are failing to make sufficient provision for retirement; there is a mismatch between the income people believe they need in retirement and the actual cost of living, which means those who are not yet retired expect living expenses to take up just 34% of their retirement income, whereas in actuality they account for 49%.

The one key thing you need to know about your ISA is the deadline. If you don’t use your allowance by 5 April, you lose it. You can put up to £20,000 in an ISA in the current tax year. If you can afford to do that every year you can work out how much your tax-free fund will be worth after five or 10 years.

While most funds on the market are what are known as open-end funds, or mutual funds, there is another option that has become exceptionally popular in recent years. Investment trusts have traditionally been less popular than mutual funds, but this is changing. Recent figures from the Association of Investment Companies (AIC) show that investments in these trusts reached record levels in the last twelve months.

Investing your money always involves an element of risk but investors have a wide variety of both higher risk and lower risk investments to choose from. At times of economic or market uncertainty ‘defensive’ stocks typically increase in popularity.