With almost daily headlines about spectacular or historic falls and rises in stock markets, it’s no surprise that our customers are concerned about the money they’ve put into share-backed investments.
Your own feelings about the current economic situation will depend on your personal circumstances and temperament. We’d like to give you Zurich’s perspective, and to reassure you we remain a secure and stable partner for your long-term financial planning.
The message from Zurich remains the same as it has always been.
- View your plan as a medium to long-term investment, not a short-term one.
- Keep your financial planning strategy under regular review.
- Take professional financial advice before making any major decisions about your investments.
Thinking long-term
By their nature, stock markets are volatile. They are not only influenced by economic factors and trends, but also by sudden and unexpected events such as the terrorist attacks of 11 September 2001. When stock markets fall, they can do so rapidly and steeply, creating understandable nervousness for anyone whose sense of financial well-being is in any way linked to share performance.
In recent weeks, markets have experienced just such falls, as they have grappled with a powerful combination of negative forces. The catalyst was the sub-prime mortgage crisis in the United States, and the resultant ‘credit crunch’. Now, concerns about significant slowdowns in economies throughout the world are having further negative impacts. Almost every news bulletin seems to lead with a new financial crisis, or a bold initiative to stave one off.
On a day-to-day basis, stock markets will always be unpredictable. During the recent decline, there have been days of spectacular recovery. For example, the FTSE 100 recorded its biggest ever one-day rise on 24 November 24 2008, when it surged by almost 10%.
Even a plainly seismic event like Black Monday – when 25% was wiped off the stock market’s value in a single day in October 1987 – registers as little more than a blip when looked at over the long term.
That’s why it’s important to see plans which invest in shares clearly as medium to long-term investments. In our view, that means five to ten years at least.
Time in the market, not timing the market
In an ideal world, of course, you’d like to buy into the market at its lowest point, and sell when it’s highest. In practice, this simply isn’t possible as no one can predict when markets will bottom out.
It’s true that past performance is not a guide to the future, and it certainly should not be the only factor you consider when making investment decisions. However, it’s equally true that historically every stock market setback has been followed by recovery. Some have taken longer than others, but often the greatest gains are made in the early stages of the market upturn.
One thing’s certain: by moving your money out of shares when they are at a much lower level than when you went in, you will definitely lose out. On the other hand, if you are able to take a longer term view, and sit tight in the face of frenzied headlines and jagged performance charts, you could stand to benefit from future growth when things improve.
This table shows how different indices, representing different geographical regions, have performed over various time periods to 30 November 2008. The actual performance of your plan depends on the fund or funds you're invested in. Different indices can help you understand the performance of other markets, such as the US, Europe and Asia. The figures in the table don’t take account of any charges, which would reduce the value of an investment.
| |
1 yr |
2 yrs |
3 yrs |
4 yrs |
5 yrs |
10 yrs |
UK -
FTSE
All Share |
-32.24% |
-26.45% |
-13.62% |
4.38% |
17.79% |
10.45% |
US -
S&P 500 |
-17.62% |
-15.58% |
-15.65% |
0.49% |
1.42% |
-6.93% |
Euro -
FTSE
World Europe
ex UK |
-33.59% |
-21.51% |
-5.17% |
17.42% |
33.54% |
22.39% |
Asia -
FTSE
World
Asia Pacific |
-27.63% |
-18.94% |
-14.96% |
13.71% |
24.04% |
35.56% |
We’ve sourced these index figures, in sterling terms, from Financial Express to 30 November 2008. The indices mentioned above are measures of the markets they represent. For example, the FTSE All-Share Index represents 98-99% of the UK market. It is the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices.
Review your strategy
How comfortable you feel about riding out the storm will depend on your personal circumstances, your financial objectives and your attitude to risk. These all change over time – almost regardless of what’s going on in boardrooms and on trading floors across the world.
That’s why it’s important to review your investment strategy and your choice of funds regularly. In particular, you need to be comfortable with the balance between risk and potential reward, the blend of capital growth and income and – crucially – the time you’re prepared to invest to achieve your goals.
Zurich has a broad range of funds suitable for almost all investment objectives, market conditions and attitudes to risk. If current events are making you more cautious, for example, you could consider limiting the amount of your portfolio invested in shares, and switch to funds that invest in less volatile bonds and gilts.
The value of financial advice
The precise steps you should take at this time – if any – will depend on how your own circumstances and attitudes may be affected by what’s going on in the wider world. At Zurich, we have always believed firmly in the value and benefits of professional financial advice. Now, more than ever, skilled advisers who can help you put the current market turmoil in context, and identify whether you should be adjusting your current plans, will prove their worth. As ever, we strongly recommend that you talk to your adviser before you make any decision about your investments.
Zurich – still strong in turbulent times
We’d like to reassure you that Zurich remains financially stable, with a strong balance sheet and cash flow. Our style is to be conservative and prudent in managing money and investments. We have no material exposure to either the US sub-prime mortgage market, or the high-risk lines of business that have caused major problems for some banks and insurance companies.
Zurich generated a profit amounting to $154 million for the third quarter of 2008 – a period that included not only a volatile financial market, but also one of the largest natural catastrophes in US history.
We have a diversified business, with a strong presence in both life and general insurance markets around the world. Our commitment to rigorous and disciplined risk management and growth means we are well-positioned to deal with both today’s market conditions, and tomorrow’s.