2022 has been a year of volatility in investment markets and there is no-one predicting that this will end anytime soon. Inflation and interest rates are rising, the war in Ukraine continues, energy supplies are under pressure and Brexit issues remain unresolved. It’s all quite uncertain.
On the other hand, I want to stress again that volatility is simply a feature of investment markets and doesn’t merit panic and short-term tactical decisions. Time and again we see that investor behaviour is often a significant reason for investment outcomes not being achieved. So I’ve set out a few thoughts on some of the personal actions you can take that will help you achieve the outcomes that you want.
Keep a long term view
Your investment plan was constructed for a medium to long term timeframe. Now is not the time to forget about this. Taking short-term decisions based on short term factors runs a serious risk of undermining your carefully constructed portfolio. It should be expected and accepted that the value of your investments will go up and down in line with markets in the short term. Looking at the value of your investments too frequently can increase anxiety levels, as you see the amounts fluctuate. So resist that temptation, and focus on your progress towards your long-term goals.
Judge success against your own objectives
We’ve all heard the local bore droning on in the pub about his/her latest investment success and how insightful he/she is. What you don’t tend to hear from them are the other investment losses that they might have suffered. Even where other people may be achieving investment successes without being insufferable about them, it’s worth always remembering that their objectives are likely to be very different to yours, and as a result their portfolio may bear little resemblance to yours. For example, they may be happy have a lot more risk in their portfolio.
Don’t judge yourself against others. Instead ensure that you’re crystal clear about your own objectives and that you have the right portfolio to achieve them. That’s all you need to concern yourself with.
Don’t try and time markets
I sometimes still get the call from a client that goes something like this, “I know my investment horizon has 8/10/20 years to run and that my portfolio is constructed with that in mind, but I really think markets are about to significantly drop because of (insert whatever you want here). I think it makes sense to get out of the market just for a while”.
Trying to time markets is folly. Success comes from time in the market. The problem when you get out of the market is deciding when to go back in. Time after time, investors get this timing wrong and end up missing significant growth as markets quickly recover from a short-term and temporary setback.
I stress this one to all of our clients, wherever they are on their financial journey. While the amount you save will invariably increase and decrease in line with your need to save and indeed your capacity for saving, I recommend that this is one tap that should never be turned off completely. Saving is a habit, and once you stop it can be very hard to get going again. Small amounts matter too, so never think that they won’t make a difference over the long term.
Shut out the noise
This is probably the hardest behaviour to practice, with the blaring 24/7 news cycle all around us. It’s impossible to escape the views of a constant stream of experts / analysts / doomsayers offering their opinion on where markets are going next. These views can be unsettling as you consider the impact their forecasts will have on your financial plans.
But their views are just that, their views. And their thinking is usually a reaction to a short term factor in the economic or investment environment. While at the same time, your plan is a long term one that will go through many different investment cycles. Shut out the noise, don’t react to every article you read and trust your own plan. Of course keeping this under review is a critical part of achieving your objectives, but do this in a structured and planned way instead of as a reaction to noise.
It can be hard sometimes to stay focused on the long term and not react to short term factors. But doing this is a key element to achieving your objectives.