Tuesday 27 April 2021

Weathering the Pandemic Storm

The Covid 19 pandemic has created a huge financial and economic dislocation in the UK and around the world. Investors will have seen big changes in the markets. Many sectors of the economy have been hard hit. What has been the impact on DIY Income Investor portfolio? And what lessons can we learn from this experience?

As of mid-April 2021, the DIY Income Investor portfolio has - to my relief - recovered its pre-pandemic value. Here's the story.

December 2019 was a bumper month, with the portfolio increasing in total value by nearly 4%, a hefty monthly uptick. However, this was not to last and at the beginning of 2020, as worries about Covid began to spread, the value of the portfolio began to slip, In March 2020, when the pandemic was declared, the portfolio's value fell by over 17%.

Over the following months of 2020 there was some market optimism from April to July. But then, as the tenaciousness of the virus became apparent, markets slipped again.

In November 2020, the market perked up, increasing the value of the portfolio by 10% - quite a relief, I have to say. The following months showed a steady improvement, followed by a rapid growth in value in the first half of April 2021 - taking the value of the portfolio to its pre-pandemic level.

During this period I bought and sold very little - just gritting my teeth and holding on. I looked back at the experience of the financial crisis, when - in 2008 - my then portfolio lost one third of its value. I held on then and the portfolio gradually recovered. 

So, what was good and bad about the portfolio - and what helped it to weather the storm?

To recap (for new readers) the portfolio is composed of income-producing securities from dividends and from fixed income, such as bonds, approximately 50/50. These securities are either individual holdings or - more commonly now - collective investments, such as Exchange Traded Funds or other funds or securities that combine a number of different individual securities. The portfolio is composed of securities quoted on the London Stock Exchange - but is deliberately diversified geographically and by currency.

As this is an income-oriented portfolio, the income streams continued in a fairly uninterrupted way through the crisis, with a return of around 5%. That helped to cushion the loss in market value. 

The portfolio also avoided most of the worst affected sectors of the economy - hospitality, entertainment, travel (it also missed any growth in the pharmaceutical sector). However, housebuilding and property  sectors were hit,

However, as most of the portfolio is now diversified there were no major 'hits' or investment failures. (There were a couple before the pandemic.)

So, the conclusion I make is that although the experience of the last year or so has not been pleasant, it does seem to show that the DIY Income Investor portfolio has been resilient once again. The key lesson is - don't panic and sell, instead hang on, collect your income, and wait for better times. 

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

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