As Halloween approaches, so does the (next) deadline for Brexit… Or at least it was until the last few weeks!! Instead we are now looking at a December general election.
As you can guess, the idea for this newsletter started before the extension and general election were announced, but I feel like the message is still just as relevant now, so here a few reminders of how we think about current events…
It isn’t different this time
It’s tempting to think that this time it’s different, but history is littered with periods of time where the stock market felt like a scary place to be. The most recent of these was the 2008 credit crisis where the FTSE 100 dropped over 30%. But we can look back and see many events and time periods over history that have felt awful for investors.
‘Experts’ will try and tell you that it’s different this time, but it never is. Global markets have always bounced back and provided a healthy return for investors. Good companies will always find a way to make a profit and continue to grow in the long-term.
Timing markets is impossible
It’s impossible to predict when these events will happen. With the benefit of hindsight, many people tell you that they saw it coming. But the truth is that no-one does. There are many moments in history where those same people predicted a crash, but it never happened. For instance, you could argue that when we voted to leave the EU on 23 June 2016 that it felt like a bad time to be invested. The FTSE 100 certainly fell immediately.
However, since then the FTSE 100 has delivered a return of 32.68%. It feels like it has been a very uncertain time, but stock markets have still delivered a healthy return (albeit with volatility, but that’s why none of our clients are 100% invested in the stock market).
Those who do try to time markets actually have two different timing decisions to make; when to sell out of the market, and when to start buying again. If one decision is difficult to time, getting both timing decisions correct is nigh on impossible.
The real enemy
Throughout good and bad times, inflation continues to eat away at the buying power of your capital. If you look at the long-term, market volatility isn’t what affects living standards, it’s inflation.
In 1918, 4 pints of milk would have cost you 6p. In 1968, that same 6p would have bought you 3 glasses of milk. In 2018, it would have bought you 13 teaspoons of milk. Everyone’s happy to talk about the sharp falls of stock markets. But very few people talk about the drastic effects of inflation. Why not? Because stock market falls are more dramatic (and make great headlines).
Short term volatility is uncomfortable, but inflation is the killer of hopes, dreams, dignity and independence.
You are not only exposed to the UK stock market
We design our client portfolios to be highly diversified across the world and different asset classes. Our client portfolios do have an exposure to UK stock markets, but only as a small part of a globally diversified approach. This helps provide a degree of protection against country specific risks, e.g. Brexit.
You have a plan (not just a portfolio)
All our clients have a financial plan that is built on return assumptions, whilst their portfolio is designed to deliver the return they need to make their financial plan work. We have back-tested the portfolios to ensure they can weather stock market shocks and still achieve the return our clients need.
If the stock market does drop, we are able to make adjustments to ride out the storm until growth resumes. Part of a successful and robust investment experience is weathering short term volatility. I wish there were a better way, but there isn’t. The good news for our clients is that we will be on their side, no matter what happens, monitoring their investment portfolio, making any changes that are prudent and ensuring they don’t make any big mistakes.
The news is not your friend!
News outlets are not designed to provide you with comfort or help you stick to your plan. They are purely concerned with getting the public to read, watch or listen to their content. For them, the more dramatic, the better. So try not to let the news worry you. If it does bother you (and you’re a client) please feel free to give us a call and we’ll put it in context. If you’re not a client, give us a call and we can have a chat about how we can build a robust portfolio that supports you living your best life.