Diversifying your investments for the second wave

When COVID-19 first hit the UK in early 2020, a national lockdown and continued uncertainty spelled trouble for some investors’ investment portfolios.

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The notoriously volatile stock market suffered severe fluctuations due to the financial panic caused by the Coronavirus pandemic, with the FTSE 100 recording its largest daily decline in March since 1987s Black Monday.

Meanwhile, the Bank of England (BoE) slashed their base rate to 0.1% on March 19 - the lowest on record - with Andrew Bailey, BoE Governor, later announcing that negative interest rates are under ‘active review’ for the first time in the BoE’s 325-year history.

Now, experts consider us to be in the middle of a second wave of COVID-19, and though we’re still dealing with much of the fallout brought about by the emergence of the pandemic, it could be as good a time as ever to review your portfolio and make sure it’s prepared for what’s to come. 


A diversified portfolio is always important

It’s a well known fact that a diversified investment portfolio is a must when it comes to maximising potential returns and minimising risk.

This is the case no matter the investment and economic climate, but it’s especially crucial when attempting to navigate the complex and unknown road ahead. 

Keeping your investments diversified across a range of assets, sectors and geographies is one of the best methods to spread risk - it’s important to avoid putting all of your eggs in one basket. 

Seeking advice from an independent financial advisor is recommended, because your personal circumstances and goals play an important role in building the right portfolio for you, there’s no one-size-fits-all approach. 

Investments, unlike cash, can rise and fall in value, and are typically medium–long term commitments. 

While investing is a good consideration for those who are looking to grow their capital and are willing to take more risk to do so, it’s advisable to have an easy-access cash fund for a rainy day.


Some sectors have been more resilient than others

The impacts of the Coronavirus crisis have touched every sector. And when choosing where to invest as you diversify your portfolio in preparation for what could be ahead, looking back at the sectors that proved somewhat resilient throughout the first wave could provide some guidance. 

However, it’s important to remember that it’s almost impossible to predict what’s to come, and past performance can not guarantee future performance. 

Nevertheless, the tech sector has continued to perform well, as the ‘new normal’ has seen digital solutions become crucial as people and businesses have to significantly reduce contact in the physical world.

As well as this, the housing market - though closed for the duration of the first national lockdown, where house viewings, home moves and most construction ceased - has shown significant resilience. 

Read more:5 things investors need to know about diversifying with property

When the market reopened in May following the easing of restrictions, pent-up demand caused a housing mini-boom, with demand jumping by 80% in a week according to Zoopla’s UK Cities House Price Index Report. 

Now, house prices have hit a record high, with recent statistics from the Office for National Statistics (ONS) reporting a leap of 4.7% over the year

And with measures from the Government - such as the stamp duty holiday - helping to boost the housing market even further, it’s promising for home buyers, sellers and investors into the likes of the CARLTON Bonds IFISA.


Proposals to change capital gains tax

On November 11 2020, a report by the Office of Tax Simplification - which was commissioned by Rishi Sunak, Chancellor of the Exchequer, to review capitals gains tax - was published, urging an overhaul of the tax.

The proposals outlined in the report recommended cutting the capital gains tax allowance, and aligning rates more closely with income tax. 

This could raise up to £14 billion - and is an option the Government may consider when assessing ways of paying back the debt racked up by Coronavirus rescue measures - but would have a negative effect on wealthy individuals who hold second homes or other assets outside of a tax wrapper. 

Read more:why now could be the best time to make the most of your ISA allowance

Therefore, when considering where to invest, keep in mind that shielding returns from capital gains tax could be more important than ever. 

There are multiple methods of investment that offer tax relief on capital gains, including the Individual Savings Account (ISA), whereby all returns are completely free from both capital gains tax and income tax. 

Within the ISA family, the Stocks and Shares ISA and IFISA could be a valuable consideration for investors willing to take on medium–high risk. 

A Stocks and Shares ISA offers potential returns in excess of 4% over the long-term, but bear in mind that stock market fluctuations are common, and they have been particularly volatile during COVID-19.

The IFISA is uncorrelated to the stock market, and potential returns range from 4% to 8%. 

With an IFISA, investors can invest into the likes of SME and consumer loans, and property.

Read more:calculate potential returns with a MAVEN Bonds IFISA


Carlton Bonds Brochure

The CARLTON Bonds product is available exclusively to experienced investors who are classified as either sophisticated investors, high-net-worth individuals or professional investors and have the knowledge and experience to make their own investment decisions. Investments are high risk and illiquid, your capital is at risk and returns are not guaranteed. Bonds are not protected by the Financial Services Compensation Scheme (FSCS).