The world breaks about once every decade - history rhymes, as they say, and you have to be prepared for that. This is the unvarnished truth about investing, and I’m going to explain it directly, because I really want you to understand it.
Care Fees Financial Planning
21 Investor Mistakes During a Stock Market Downturn
2018 has been a choppy, volatile and potentially a negative year in most of the major stock markets of the world, although it’s the first time that’s happened in eight or nine years.
In response, it seemed like a good opportunity to address the mistakes that investors make during a market downturn. I’ve observed these mistakes in my professional role as an advisor, but also as a human and an investor myself, so I hope these points will be useful for you.
Why my investment strategy for client portfolios will be the same in 2017 as it was in 2016.
As we reach the end of yet another fantastic year, it’s time to reflect on the further success of the mighty human race. The Olympics in Rio were spectacular; our dearest Queen turned 90; it was the 400th year death-anniversary of the planet’s greatest wordsmith ever, Mr William Shakespeare. There were countless amazing cultural and art festivals around the globe. We live in amazing times.
We continue to innovate, educate more people and lift more and more families out of extreme poverty. Modern media will continue to focus on the ‘negative’ events of 2016. Who knows if they are as negative as portrayed or if they are just changes or tweaks in time?
No self-respecting financial planner (truth giver) ever wants to talk about short-term (anything less than decades) market movements but at time of writing the major stock markets of this great planet are all approximately 10% higher than the start of 2016. We have a few trading days left but I expect this won’t change much in the remaining couple of weeks of this year.
However, had you listened to modern media’s greatest trick – trying to convince you the world is going to end and all of your client’s life savings would become worthless and that the investment markets are a vehicle to poverty rather than a vehicle to lifetime and multi-generational wealth creation – then it’s likely you would have ‘positioned’ clients’ portfolios as the events unfolded or worse still, taken them out of the markets altogether. That will never be the right decision. The advice to clients should always be the same: You invest forever and you never try to time the markets, the economy, or any other event for that matter.
Having exited the markets you would have then been left on the edge of the riverbank without a guide, boat or map, hoping in despair to catch the eye of a passing boat.
The rational, disciplined investor, who was under the caring stewardship of a smart, lifetime adviser, would have continued as normal. Knowing that the markets move, knowing the world moves from panic to crisis and back to panic. However, what they would not have done was ‘reacted’ or ‘positioned’ their portfolios for ‘coming events’. They and their portfolios were already positioned.
This is foresight planning and not impulse reaction planning, which are worlds apart in both intellect and also returns.
Clients’ emotional wants and financial needs are in full-out war and they are simply not equipped to deal with this kind of conflict. Any that don’t have an adviser who offers an ‘invest, sit tight and forget’ strategy, should seek one out.
So we will march forward, post the Brexit vote and post Trump’s election, with our sights firmly set on the prize, i.e. continued innovation, development and wealth creation for decades to come.
As I write this the media are trying to create new sound bites for the next (illusionary) Armageddon towards which, they would have us believe, we are heading. Usually containing the words, recession, cliff, bust, boom, bang-crash-wallop. Remember they’re there to sell pages, clicks and eye balls. Not to serve you, your clients or your clients’ families with investing truths.
Positioning for 2017
So how do we position our investment portfolios heading into 2017?
The history of the stock markets shows that we have absolutely no idea how the markets will perform/react/move. If anyone tells you differently they are lying to you. This is not a mistake on their behalf; it’s an outright lie. And we should be afraid of liars. No one knows what even the short-term market ‘movement’ will be – that is an investment wisdom and truth.
What’s needed for clients is a well-crafted, globally diversified, lifetime investment portfolio, built with foresight in mind – in that it is well spread geographically and also contains thousands of individual securities (stocks, bonds) to weather all market storms and absorb the latest panics and crises which will be thrown at it. Reacting to current noise and ‘positioning’ a portfolio is a fool’s errand.
The pessimist can never be a successful investor; they will continually seek positive confirmation of their negative world views. The optimist will move from crisis to panic and back again, with a confident smile, knowing they are strong and capable enough to deal with anything and everything the world throws at them.
Every year we hear multiple reasons why we should not invest in the stock markets; this will not change. But neither will the fact, as shown historically, that markets do move in a positive direction. As financial planners we can accept this and apply it in helping our clients manage their wealth and financial affairs, or we can be controlled by the journalist who’s job it is to emphasise catastrophe or trivia. The truth is boring and never changes.
I wish you well for 2017 and rest assured, my end of year article in 12 months time will make for very similar reading.
The content of this article is for information purposes only and does not constitute a personal recommendation. You should always speak to an FCA regulated financial adviser when considering financial advice. Any recommendation made will be based on a full suitability assessment that will include a comprehensive review of your circumstances, needs and objectives.