Time To Panic?

Stock markets have fallen heavily today (23/3/26) amid ever rising concerns about the war in Iran and the possible effect it will have on global economies.

The falls coincide with the end of the tax year when investors often use-up their ISA allowance for tax-free stock market investments.

It makes the decision about what to do – even more complex.

 Q: How worried should investors be?

A: As Dickens might have said: "It was the best of charts, it was the worst of charts…” Stock markets took a serious tumble this morning on fears about the war in Iran. But to see the full story you need to see the two charts Today Vs 12 months)

Barclays shares are down 5% this week. But even given this fall they are up 20% in the past year.

Shell shares are up 3% this week and over the past year they are up 27%

So that sets this current fall in context of a very strong performance. It also underlines the importance generally of investing in the stock market for the long-term – so it evens out these sometimes frightening bumps in valuations.

But the turmoil should also not be dismissed.

·      The 1987 crash that was known as Black Monday saw the stock market fall by 30% between September and December and took 2 years to recover

·      The dot.com crash of which started in 2000 and ended in 2003 saw a 47% fall in value and took 7 years to fully recover

·      The financial crisis of 2008 saw a 40% fall and took 4 years to recover

·      And the COVID crash of 2020 saw a 30% fall and took about 2 years to recover.

So, we have not seen the kinds of falls of those types of stock market routs and if we did, it could mean that it would take a few years to regain the lost ground.

One thing to remember when looking at the FTSE performance is that it ignores dividends. Even though the value fell – companies will still be issuing dividends, so you are making much more money than the Index itself suggests.  

Q: So, doesn’t this leave people in a difficult situation if they want to make use of their ISA allowance before it runs out on April 5^th?

Around 8 million people in the UK fail to use their full ISA allowance each year, according to industry research—leaving valuable tax-free capacity on the table.

Against that backdrop, as the ISA deadline approaches, investors are weighing not just tax efficiency, but an increasingly uncertain global outlook. With the prospect of a second Trump presidency raising questions about trade, geopolitics and market stability, how should that shape your ISA strategy?

I’d personally certainly be more cautious in my approach to investing at the moment. But it is also true that many people buy when everyone is very confident and as a result shares are expensive. They then sell when people are nervous and prices are low. So they don’t get the best deals. A courageous investor might see this as an opportunity to buy relatively cheaply if they were investing for the long-term.

It is difficult if not impossible to point to the level at which you should start investing and given the uncertainty of global politics, it might be good to be cautious. But it very much depends on your appetite for risk.

Q: What about a cash ISA – does that make sense at the moment?

Cash ISAs have regained relevance for two reasons. First, higher interest rates mean cash now offers a genuine, if modest, real return.

Secondly the government is going to limit the amount you can out in a cash ISA as they want to encourage more people to invest in the stock market.

At the moment, you can invest £20,000 a year in ISAs – you can put that all in a Cash ISA if you want.

From April 2027 you will only be able to put in £12,000 in a cash ISA and the remaining £8,000 of your ISA allowance must go into other kinds of investments. The restriction only applies to those under the age of 65.

So, this might make it more appealing to those with long-term cash savings to look at Cash ISAs to build up as much as they can while the rules allow.

Amongst the highest paying Fixed Rate Cash ISAs are:

·      Close Brothers: 4.36% (5 Years)

·      Investec 4.3%: (1 year)

·      Skipton Building Society: 4.25% (15 month)

You can see up to date details at MoneyFactsCompare.co.uk

Amongst the highest paying Variable Cash ISAs are:

·      Trading 212: 4.68%

·      Plum: 4.66%

·      Atom Bank: 4.25%

You can see up to date details at MoneyFactsCompare.co.uk

Q: For those willing to take some risk, why might investing in the stock market be more attractive than holding cash?

A: The key difference is growth. Even today, a competitive fixed-rate Cash ISA might offer around 4%, which on £1,000 amounts to roughly £40 over a year.

By contrast, equity markets—while more volatile—have historically delivered higher returns over time. A FTSE tracker, for example, might reasonably deliver 7–8% annually over the long term, and in stronger years considerably more. That means £1,000 invested could generate £70 or £80—or potentially more in a favourable market environment.

Of course, the crucial distinction is that these returns are not guaranteed. Markets can fall as well as rise, particularly over shorter periods. But for investors with a longer time horizon—typically five years or more—and a tolerance for volatility, equities have historically provided a more effective way of growing wealth than cash.

You might like to think, very roughly that in essence, cash investments aim largely to preserve value; equities are designed to build it, but they involve hugely amounts of risk.

Q: If you are willing to take a risk – are there any things you should consider to try and mitigate the fluctuations you are seeing in the market?

The central principle is diversification—not just across asset classes, but geographically.

Many UK investors are heavily exposed to US equities, often without realising it.

20 FTSE 100 companies already have more than 20% of their facilities in the US, according to AJ Bell analysis of Bloomberg data. Companies such as the UK catering group Compass have 92% of their sales in the US, according to AJ Bell.

A globally diversified fund, or a carefully balanced portfolio of regional funds, can help mitigate the risk of any single political or economic shock.

Q: Some believe this is exactly the time to invest in a managed fund rather than an Index Tracker, as the fund manager can make clever decisions and find areas that won’t fall or indeed may rise, such as oil or arms manufacturers. What are the benefits of that strategy?

A FTSE Tracker—whether following the FTSE 100 or a broader global index—offers low-cost, transparent exposure to the market. Fees are typically a fraction of those charged by active managers, who try to pick individual shares or sectors which will do well. So, there is certainly a good argument that actively managed funds have a strong appeal.

However, many claim that in practice, over the long term many active funds struggle to consistently outperform the Tracker Funds, after costs.

The long-running SPIVA (S&P Indices Versus Active) scorecards suggests that in UK

A very large number of funds didn’t do as well as a Tracker and charged their investors more in terms of management fees.

If you pick the right fund, you may well be able to outperform the Index Trackers – but knowing which fund to invest in, is a very hard choice to make.

You can see the research from SPGlobal Here and similar research from Morningstar Here.

For many investors, the most pragmatic approach is a combination: using low-cost trackers as a core holding, while allocating selectively to active managers where there is a clear, evidence-based case for doing so.

Q: If someone wants to buy a low-cost tracker, what’s the simplest way to do it—and how much do fees vary?

The simplest route is through an online investment platform—often called a “DIY” platform—where you can buy a tracker fund or ETF directly within an ISA. Providers such as Freetrade, Vanguard or AJ Bell typically offer very low platform fees, often around 0% to 0.25% a year, depending on the structure.

That difference may not sound dramatic, but over time it compounds significantly. On a £50,000 portfolio over 10–20 years, paying an extra 0.5% to 0.75% annually can amount to thousands of pounds in lost returns.

In essence, with trackers in particular—where the product itself is relatively simple—cost becomes one of the most important determinants of long-term performance.

Final Thought: While politics may shape the daily changing headlines, it is structure, discipline, understanding the level of risk and what amount you can afford to take, and long-term thinking that can shape your investment strategy.

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