Savings and Investments

Investing during times of crisis

The past two months have been extremely volatile for investment markets.  While this level of volatility can be a shock for less experienced investors, those who have worked and invested through previous downturns understand that this time will pass, and some relative calm will eventually return to markets.

Following the recent equity market peak-to-trough fall on 23rd March 2020, most markets have recovered a significant portion of their losses.  At time of writing, 30th April 2020, the S&P 500 has rallied by almost 30% from its March low and is now only 11% below its recent all-time high on 19 February 2020[1].

The emotional biases that led some investors to switch their funds to lower risk funds or cash in March due to fear and uncertainty have now been replaced in April by over confidence.  Both periods exhibited classic herding behaviour whereby many investors succumb to their emotions and overreact in the same way to certain events.

While no one knows what the future will hold it is possible that the recent bout of market volatility will extend beyond the second quarter of the year.  A continuation of this volatility means that we can expect to see further falls, and rises, in equity markets over the summer months and into Autumn, assuming a vaccine for COVID-19 is not discovered sooner.

If uncertainty remains, just like in March, it may be difficult for an investor to remain committed to their investment strategy.  Below I outline three reasons why investors should remain invested during these periods of volatility, and why multi-asset funds may help them achieve a better investment outcome over the medium to long-term.

1)    Crises are a fact of life in financial markets

  • Markets are cyclical, they rise and fall in line with the prevailing economic environment.  Since 1928, the US stock market has produced positive returns in 66% of calendar years[2]
  • On average since 1926, equities have dipped into bear market territory roughly every five years with losses averaging almost 30% (Source: Bloomberg & Aviva, as at 31 December 2020)2.

[1] Source: Bloomberg, as at 30th April 2020.

[2] Source: Bloomberg & Aviva, as at 31 December 2020)

  • While market downturns may be unsettling, history shows us that equities have recovered and delivered long-term gains, as you can see from the chart below. Generally, the longer your investment time horizon the greater the potential rewards.
Graph 1

Source: Aviva & Bloomberg, as at 27 March 2020. Returns have been calculated using US dollar prices.

Warning: If you invest in this product you may lose some or all of the money you invest.


Warning: Past performance is not a reliable guide to future performance.


Warning: The value of your investment may go down as well as up.


Warning: These funds may be affected by changes in currency exchange rates.

2)    Avoid predictions & stay invested

  • We cannot pick the bottom of a market, nobody has the power of precognition.
  • When accepting some level of risk into our portfolios we should expect to be rewarded and this is reflected in real world evidence spanning more than 90 years (refer to point 1 above);
  • The table below shows 8 of the 10 worst days in terms of return experienced by the S&P 500 index over the last 90 plus years.  Each of the eight ‘worst days’ was soon followed by a strong positive return from one of the top 20 ‘best days’ in terms of return experienced by the S&P 500 index over the last 90 plus years.
  • These best and worst days come within just a few days of each other in clusters.
  • This illustrates that missing the worst day usually means that you are highly likely to also miss the best days.
  • Investors are rewarded over time for remaining invested and tolerating these worst days.
Table 1

Source: Aviva & Bloomberg April 2020. As at 27 March 2020. Returns have been calculated using US dollar prices.

Warning: If you invest in this product you may lose some or all of the money you invest.


Warning: Past performance is not a reliable guide to future performance.


Warning: The value of your investment may go down as well as up.


Warning: These funds may be affected by changes in currency exchange rates.

3)  Invest in a fund that suits your attitude to risk over the medium to long term

  • It is important that you work with your financial broker to choose an investment strategy that aligns with your attitude to risk, goals, timeframe, and financial situation, and you can stick with despite market volatility.
  • The combination of equities, bonds, property and other investments will determine both the potential return and the volatility of the portfolio.
  • Lower risk multi-asset funds, such as Compass Cautious (ESMA 3), have a relatively low allocation to equity markets, instead favouring a more defensive strategy, using bonds and alternative strategies to help provide more risk adverse investors with a smoother journey when market volatility increases.
Graph 2

Source: Aviva, Financial Express April 2020. The returns quoted include the reinvestment of net income, are net of trading costs and net of an annual management charge of 0.75%.  Other insurance contract charges apply and as such the returns shown do not represent the returns on insurance contracts linked to these funds.  Details of all charges for a particular product are available on request.

Warning: If you invest in this product you may lose some or all of the money you invest.


Warning: Past performance is not a reliable guide to future performance.


Warning: The value of your investment may go down as well as up.


Warning: These funds may be affected by changes in currency exchange rates.

· Higher risk funds, such as Compass Portfolio (ESMA 5) will have a much higher allocation to equity markets, while seeking diversification by investing smaller amounts in bonds and alternatives. Funds such as this, and our Compass Adventurous (ESMA 6) fund, may be suitable for younger investors with a longer time horizon to retirement or, less risk averse, investors willing to tolerate higher peak to trough falls in value (risk) in the expectation of greater rewards (returns).

Key Insights

  • Equity market lows seen in March 2020 may not be revisited however we should expect continued market volatility in the near-term due to COVID-19 fall out.
  • Making predictions and attempting market timing generally does not  work.
  • Investors with a medium to long term investment horizon therefore need to accept risk in times of market volatility, by remaining invested, in order to achieve a better outcome;
  • Through the power of diversification, multi-asset funds, such as those in the Compass range, can offer investors a smoother journey through times of crisis.
Richard Gallagher, Director of Multi-Assets at Aviva Life & Pensions Ireland DAC

The information contained herein does not constitute investment advice. It does not take into account the investment objectives, financial position or needs of any particular investor. Before making an investment decision, you should consult suitably qualified and independent investment, taxation and regulatory advisors to discuss your specific situation and investment objectives. The investment strategies and risk profiles outlined in this document may not be suitable for your specific investment needs.

The funds referred to in this document may be linked to an insurance-based investment product and the Key Information Document (KID) for this product is available at www.friendsfirst.ie/kids. The Risk Ratings of the funds referred to in this document differ from the corresponding Summary Risk Indicators shown in the KID. An explanation of the differences between the Risk Rating and the Summary Risk Indicator is available at the location above.

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Aviva Life & Pensions Ireland Designated Activity Company, a private company limited by shares. Registered in Ireland No. 165970. Registered office at One Park Place, Hatch Street, Dublin 2, D02 E651. Aviva Life & Pensions Ireland Designated Activity Company, trading as Aviva Life & Pensions Ireland and Friends First, is regulated by the Central Bank of Ireland. Tel (01) 898 7950.