2020 – A positive year for Carbon’s portfolios

2020 was a year that no one expected. You could be forgiven for thinking that the biggest story of the year would have been the UK officially leaving the EU in January. Since then, COVID-19 has spread across the globe at an alarming rate, locking down countries and their economies for months on end.

However, as individuals and businesses have gradually learned to live with the virus, the investment markets have also found their feet.

What 2020 shows us is that, in the absence of a functioning crystal ball, it is not possible to predict where investment markets will go. Rewind to March 2020... who would have thought then that by January 2021 we would be in Lockdown 3.0 and yet the global stock market would be trading higher than it was in January 2020?

We have reviewed the performance of each of our portfolios in 2020, not just to illustrate the positive returns but also to provide further evidence that buying and holding a low cost portfolio with a focus on the correct areas of the market, is much more likely to provide the return you need than actively-managed funds that try to predict what the world will look like tomorrow.

The more efficient your investment approach, the more money there will be for you and your family to spend doing the things you enjoy.

The chart below shows the performance of Carbon’s six portfolios in 2020:

Positive returns

• All six portfolios delivered a return of more than 5% in 2020.
• Portfolio 6, as we would expect, fell the furthest. However, it also recovered the quickest. By the end of the year it had almost regained its position as top performer which is of course where it sits over any medium to long-term period.

When markets fall, don’t panic. Here’s why…

• Jumping in and out of markets is highly likely to be detrimental. Instead, investors are more likely to profit by remaining invested at all times.
• One of our key roles in 2020 was to coach our clients through the COVID-19 market crash, i.e. provide them with the reassurance and confidence to stick it out and remain invested.
• This example illustrates the importance of remaining invested through market crashes:
  • Carbon’s portfolio 6 is up 48% between 23^rd March 2020 (the low point of the COVID crash) and 29^th January 2021 (the time of writing).
  • Consider an investor with £1m invested in portfolio 6 on 23^rd March 2020 who panicked when markets fell. They encashed their portfolio and reinvested today (29^th January 2021). Doing so cost them £480,000 in missed investment returns!

Risk and return

• The short-term fall in our portfolios in March ranged from a single-digit fall for portfolio 1 to a fall of a third for portfolio 6.
• Therefore, it is essential that as investors, we understand the expected range of returns of the portfolios we invest in. Of course, we don’t know what returns will be like in the future but there have been multiple financial crashes in the past that we can look to as a guide.
• When discussing risk and return with clients, we avoid using subjective phrases that have become the norm in our industry (‘medium risk’ being the most notorious!). Instead, we look at the ups and downs of our portfolios in the past to quantify to clients the sort of fluctuations they can expect to experience.

Would you like Carbon’s Second Opinion at no cost?

A number of new clients have come to us in the last year because they have been disappointed or surprised by the extent to which their portfolio suffered in 2020. This was typically due to either having too much invested in the stock markets and/or having too much invested in the UK.

If this sounds familiar, or if you would like to discuss any areas of your wider financial planning or investment management, our Second Opinion Service may be of interest. This involves Carbon taking a fresh, objective view of all relevant areas of your finances and determining if there are any areas where some valuable improvements could be made. The service is free of charge for 2021.

If you would like to go ahead with our Second Opinion Service, please get in touch by emailing enquiries@carbonfinancial.co.uk

Matt Duncan is Associate Director at Carbon and can be contacted at matthew.duncan@carbonfinancial.co.uk or by phone: 07717 423 329

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The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.

This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action.

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