Black Swans

2020 – A Black Swan year

In the Chinese animal zodiac 2020 is the year of the rat and what a ratty year it has been! Who at the beginning of the year would have predicted how devastating the coronavirus pandemic would be? I remember writing a blog on 4th February 2020 in which I said: “this is obviously a serious matter and could easily result in a global financial crisis and one headline asks; ‘is China's Coronavirus the next Black Swan?”

The ensuing health and financial crisis did indeed become a ‘Black Swan’ event on a global scale and the misery caused will have a long-lasting effect on all of our daily lives and our personal finances. But hopefully now the vaccine is being rolled out lives will start returning to the new normal, whatever that may be, in 2021.

When I look back on 2020, I think we at Better Retirement, like many other advisers, can hold our heads up high because we have served our clients well and helped them through the most difficult of times. Not only have we been proactive with our own clients but we have reached out to everyone in the UK who was concerned or anxious about their personal finances through the Emergency Advice project.

Emergency Advice

This was a project offering pro bono financial advice to those who needed it most during the early months of the pandemic. Although I initiated the Emergency Advice project, a lot of credit must be given to the 50 or more advisers who offered their help as well as the firms who provided support such as websites and radio interviews.

The same cannot be said of the larger organisations and insurance companies who did not support the project in the way that smaller, owner managed firms and advisers did.

Black Swans

A ‘Black Swan’ event refers to an extremely negative event that is impossibly difficult to predict making them unexpected and unknowable. The potential for such events to result in a stock market crash is one of the reasons why investment and retirement planning is so difficult. Nobody likes to lose money especially if it impacts on their retirement plans.

There have been several ‘Black Swan’ events in recent times. For instance, the 2000 “Dotcom” Crash, the 9/11 attacks on the World Trade Center in 2001 and the 2008 Global Financial Crisis.

I have first-hand experience of advising clients through these stock market crashes and although each event was unexpected, the response and reaction after the event was predictable.

Shock and horror

First there is shock and concern. Then there is a rush to take remedial action if that is possible. This is followed by talk of avoiding being caught out in the same way in the future. Finally, the shock and concern of the initial ‘Black Swan’ event is forgotten, and people revert back to their normal investment habits. I think we are now in the “how do we avoid being caught out again” phase.

Although I like to think that none of my clients were really caught out because they understood the risks of investing in the stock markets, it is only natural to feel anxious when financial markets fall so suddenly and dramatically.

There was no need to panic!

My first reaction to last March’s stock market crash was to tell clients, ‘don’t panic’. I then became worried that this could be seen as patronising and lazy thinking, but a lot of people were genuinely worried, and I started to worry on behalf of my clients because investing is a serious business.

But I soon stopped worrying when I remembered that all of our clients are invested in well-diversified portfolios that are in line with their attitude to risk and these portfolios are regularly rebalanced to reflect the changing financial and economic landscape.

This led me to refine my ‘don’t panic’ message to something more meaningful. I now say, “there is no need to panic if your investments were set up correctly in the first place”.

We hope we will not experience such a turbulent year again, but if there is a difficult period in the future, hopefully our advice ‘not to panic’ will hold more credibility because as recent events have shown, if you have a well-diversified portfolio managed by a selected investment house you should be able to weather any financial storm in the knowledge that your investments are professionally managed to produce growth over the long-term notwithstanding any short-term setbacks.

About the author

William Burrows

William has been involved with retirement options for nearly 30 years, advising clients on all aspects of annuities and retirement income options.

He is a regulated adviser with Eadon & Co He has have many years of practical experience in advising clients about all aspects of pension options at retirement and he is passionate about helping people make the right decisions about their pensions and retirement income.

William also publishes guides including the popular ‘You and Your Pension Pot’ and ‘The Retirement Journey’.

He is frequently quoted in the national press and appears on radio, podcasts and videos and writes extensively on retirement income matters.