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COVID-19 and the current market volatility

As the FTSE 100 and financial markets across the World continue to plunge, Associate Consultant for Quantum Advisory, Suraj Gandecha, looks into the reasons and what the future might hold.

Suraj said: “There are a number of things contributing to the fall in markets, including the big decrease in the oil price that has been driven by a fall in demand and increase in supply, but the main talking point is COVID-19. Alongside this, in the UK, the Bank of England announced on 11 March that it would be cutting interest rates back to the lowest recorded level of 0.25% and supporting banks to free up extra lending for businesses. Last week’s Budget also announced a significant increase in spending to support the economy and reassure markets. This has reminded us that there are many factors which are impacting, and will continue to impact, the global economy and performance of financial markets in coming months.

“After the longest period of market growth in history, it now looks like we may be entering a period where greater volatility in the markets (the short term up and down movements in the market) becomes the new norm. If you are a member of a Defined Contribution (DC) scheme, this can have a bearing on your savings as your pension at retirement is impacted by the performance of financial markets.

“It is important though to remember that whilst the impact of COVID-19 has been felt heavily within the past week or so, some volatility in equities (stocks and shares) is to be expected.

“While it can be unnerving, it is very important to keep in mind that investing is a long-term game. If you are far away from your retirement, fluctuations in the short term are less likely to have a lasting impact on the final value of your pension pot when you reach retirement. As has been seen in the past, markets can recover, for example following the Global Financial Crisis in 2008/2009.

“If you are closer to retirement, many DC pension schemes have the option to invest in less volatile assets such as high-quality bonds. Additionally, many DC pension schemes have a “lifestyling” strategy which means your pension pot gradually moves into lower risk funds as you approach retirement.

“Right now, the main thing is not to panic and make any sudden decisions based on the short-term events, but rather to make informed decisions which appropriately consider your long-term retirement aims.”