Jan 19, 2022 | JONATHAN ELSIGOOD
It’s fair to say that the last couple of years have been filled with uncertainties for us all. Not just when it comes to money but for life as a whole.
As we continue to find our way with the challenge of living with Covid we can experience daily highs and lows. The same can be said for the financial markets, although global stock markets performed strongly during 2021.
Since the start of 2022, we’ve seen more volatility creeping into both stock and bond markets, this time over concerns of rising inflation and interest rates.
But it’s still important to maintain your long term view. Avoid panic, avoid unnecessary, emotionally driven investment activity, believe in your portfolio and the power of markets and capitalism to generate investment returns.
Here are some tips to help keep stock markets in 2022 in perspective:
1 – Embrace the uncertainty of markets – that’s what delivers strong, long-term returns as compensation for the risks you are owed for investing. If the risks weren’t there, the returns wouldn’t be either and vice versa.
2– Remember that you own a globally diversified portfolio. For instance, the US stock market (up 30% in 2021 in sterling terms) has fallen in the year to date; but the UK stock market (for a long time suffering a Brexit hangover) has increased!
3 – Don’t measure your portfolio’s performance over short periods of time, but over a longer and more sensible timeframe. Unfortunately, many investors with 30 year investment time horizons believe 3 and 5 years is the long term and bail out of markets at the first signs of trouble, missing out on subsequent market gains.
4 – Don’t look at your portfolio too often. Get on with more important things. Once a year is more than enough. If you’re looking every day, then think about how this behaviour is affecting you. If it worries you, then stop listening to all non-essential reporting about the situation. Or just remember, bad news makes good news, but rarely facilitates sensible investment decisions!
5 – Accept that you cannot time when to be in and out of markets – it’s simply not possible. Just because the US market hit (another) all time high, it doesn’t necessarily follow that its about to crash. For a start, if markets never went beyond their all time highs, they’d never be any growth in markets. And all crystal balls are cloudy, no matter what level of guru status the owners claim.
6 – If markets do fall, remember that you still own everything you did before (the same number of shares in the same companies, and the same bond holdings). Staying invested has time again proven to be the best investment decision. Plus, if you have surplus cash funds to put to work, remember the sales have just opened.
7 – Most crucially, a fall does not turn into a loss unless you sell your investments at the wrong time. If you don’t need the money, why would you sell? Falls in the markets and recoveries to previous highs are likely to sit well inside your long-term investment horizon. Its all part of normal market activity.
8 – As your advisers, we’ve established the balance between your growth (equity) and defensive (high quality bond) assets to make sure that you can withstand temporary falls in the value of your portfolio, both emotionally and financially. If necessary, we’ll rebalance your portfolio to make sure you have the right level of equities and bonds to weather whatever markets throw at us next.
9 – If you’re taking an income from your portfolio, remember that we have options to how we fund the income withdrawal depending on where markets are and this is something we look at as part of your ongoing review meetings..
10 – We’re here – at any time – to talk to you. We’ll act as your behavioural coach to urge you to stay the course, it’s our job to help you practise discipline.
If you have any questions or need further reassurance please don’t hesitate to get in touch with us.
Past performance can’t guarantee what investments will do in the future. The value of a portfolio can go down as well as up, so there’s a chance you’d get back less than you put in.