Keep Calm and Carry On

February 25, 2022
Posted in Investments
February 25, 2022 John Sloan

Russia invades Ukraine…

A chilling headline if ever there was one.  Given the lives lost already and the potential for many, many more we sincerely hope that this conflict can be resolved quickly.  Not one of us knows however how long this will last.

We aren’t normally ones for commenting much on politics or the financial markets.  In fact, it feels insensitive and inappropriate to jump straight in to how this affects all of us and our money. We have always reiterated that there’s more to life than money, and it’s days like today when that seems more poignant than ever. We try to keep things light hearted, but that doesn’t feel appropriate right now. It’s not the time for silly quotes or making light of the main instigators in this. Those days will come, but not today.

And yet, we must talk about the money. Because the world continues to spin. We will never try to make a prediction about the economy or indeed time the markets. We won’t guess how long this might last, or how far it could go? However, given the level of anxiety in the markets we thought that it would be prudent to share some thoughts with our clients and the wider community. It’s OK to be scared. It’s that uncertainty which makes you human.

The Impact on Investments

Since the start of this year there has been increased volatility in the markets.  There are various reasons for this which we won’t get bogged down in, because they’re nearly always driven by sentiment. The Russia Ukraine tensions have been simmering, combined with the US tech market “correction” as evidenced by the NASDAQ and a reaction to increases in interest rates around the world.  It boils down to the fact that people get nervous and decide to sell their investments.  And there is always a reason for volatility and for people to think they should sell (when markets are skittish).

In the short term the stock market is a voting machine, a popularity contest of what is popular and what is not.  In the long term the markets are a weighing machine, counting the increased value of the products and services that the great companies of the world create over time.  This is paraphrasing the quote about the markets from the great Benjamin Graham (mentor to Warren Buffet).

We can always find a reason not to invest.  There will always be a reason why people think they should cash out of investments. There is always a reason for doing anything when rationalised in someone’s head. It is human behaviour to be nervous, particularly when dealing with finances.  It is emotional.  But it is the role of a good financial planner to be there for you.

Part of being a financial planner is turning to a client and saying “Yes, things are a bit crap at the moment, but we knew that a time like this would come.  Should we deviate from the financial plan that we are working on with you, Mr & Mrs Client? Of course not. The fundamentals of your financial plan are in place and the same values that we talk about every day hold true today, probably more than ever.  It is my job to be here to hold your hand and to make smart decisions about your long-term financial planning.  And my advice, right now, is to do nothing.”

The Worst Thing You Can Do

The way to turn a temporary decline in the value of your portfolio into a permanent loss is to sell your investments.  That is how wealth is destroyed. If you look at your investment accounts, you will see that you own units of each fund. That number doesn’t go down. You still own the same thing, it’s just valued less today than it was yesterday. The value will eventually bounce back, but the number of units won’t change (unless you invest more or make a withdrawal).

I saw an email today from an adviser who has told all clients that he is advising them to sell 50% of their invested assets and move to cash.  That was a blanket email to all clients and not based on anyone’s personal financial plan based on their circumstances.  Wow!

Now that email was sent today, when Global markets were already down.  Imagine how long it could take a client to come back to confirm that they want to proceed with this blanket advice.  Possibly a couple of days? So, markets might be down a bit further still and the client will have sold assets and made a permanent loss.  When does the adviser blanket advise for the clients to get back in – when markets are going up again? (Let’s forget for now about the extra transaction charges to get in and out). Does the adviser know when the market is at the bottom?  Timing when to get back into the market is virtually impossible.  Based on this logic you will sell low and buy high! Let me think about that one…


This image was shared today by a friend (thanks Stevie) and the original can be found here – https://theirrelevantinvestor.com/2020/06/10/there-are-always-reasons-to-sell/ .  There are various versions of this chart, but they all show the same thing.

There are always reasons to sell and there will always be volatility in the market.  But if you look at the trend, it is moving from bottom left to top right.  The secret to long term success is to keep calm and carry on regardless.

If you have concerns about your financial planning and investments, then give us a call as we are always here to listen and to help.

 

Footnote:

At the time of writing this blog (10.30pm on 24/02/2022) the US markets closed up for the day with the Nasdaq up over 3% and the S&P 500 up more than 1.5%.  It just goes to show that the one thing we know for certain about the markets is that we can’t predict what is going to happen! A sobering thought when you consider what this means.

In happier circumstances we would ask if the press would report how billions were wiped back onto the stock market! But right now, money isn’t the important thing. There are people being killed and families being destroyed. That is so much more important than money. There’s no point in having money, if you have nothing else.

 

Please note that past performance is not a guide to the future, the value of an investment and the income from it could go down as well as up. You may not get back what you invest.

This communication is for general information only and is not intended to be individual advice.

Modulus is not responsible for the accuracy of the information contained within the linked site / literature.

 

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