For those clients who have been with us a while, the message here will be familiar, but no apologies for my ‘stuck record’ impersonations this time. I am hopeful that this note will be a useful reminder and/or provide reassurance for those with whom we haven’t been working with as long.
Despite the misery of living with Covid, it's been relatively plain sailing since the Covid prompted fall and rapid recovery in global stock markets over the last two years.
Mr Putin’s move did come as something of a shock this week with global markets reacting negatively to yesterday morning’s news. I suspect some of you will have noticed the markets featuring prominently in the wider reporting of the crisis. It seems that for a long time now we have lived in a world where bad news trumps good news and the business pages are no different.
Whilst it is early days and more short term volatility should be expected due to the continued uncertainty, I thought I would share a chart for today’s London stock market performance: I doubt it will feature as prominently in this evening’s news!
What is predictable in times like these is the rise in prominence of doom mongering experts who urge us to move to cash and come back when things have “calmed down”. The trouble with this of course is neatly highlighted in the chart above. This tactic requires that every single time you make such a call you are correct on the way in, as well as on the way out. Whilst you might get it right once, over your lifetime of investment, your chances of getting it right again and again and again are vanishingly small. In short, a really great way to have the risks of owning stocks in your life but with only a fraction of the long term returns or even worse.
It is time in the market rather than timing the market which is important in the long run.
The message from us here at bdb right now remains the same as it always has been: the portfolio we have selected together is the one to serve your lifetime plan, not for the coming months or even the next few years. Your plan will have the flexibility built in to help you ride out short term falls in value. So long as capitalism exists, directors of listed companies will strive to make profits for their shareholders and a recovery will come if you are patient (sometimes a day’s patience is enough!).
Most properly diversified portfolios will have allocations to bonds, cash and even property which dampens the impact of a stock market wobble. Even within the equity proportion, a globally diversified approach dampens the impact of one specific country’s stock market fortunes.
Because of this, reports of disaster on the stock markets so often bear little resemblance to what is actually happening to investors’ portfolios.
Whilst it will never feel comfortable, in some respects short term falls remind us that the system is working. Without risk there can be no expectation of long term inflation beating returns - it's part of the deal when you become an investor.
I hope that this note has provided some reassurance at least. It is proven that as human beings, we are the biggest threat to the long term success of our portfolios through emotion driven interventions, not the markets.
If you are feeling uncomfortable about your portfolio or plan or just have a question, do not hesitate to pick up the phone.