Sell, sell, sell!!! Over the last few weeks, stock markets around the world have taken a bit of a battering leading some to suggest(1) that we are now seeing the beginnings of a recession. If that’s the case it could well mean that there is still some way to go before markets start to recover.
Buy, buy, buy!!! Conversely, there are also indications that economic fundamentals are still strong, that the bottom has been reached and markets start to recover some of their recent losses over coming weeks and months.
What should you do with your investments? If you believe the recession scenario, you may decide exit the markets (or just reduce the market exposure of our investments) and wait until there are signs of a recovery. However, taking steps now to reduce your exposure to the market could have one of 2 outcomes…either you’re right and you stem any further reduction in the value of your investment and you can buy back into the market at a lower price later on (assuming, that is, that you are lucky enough to time your buy on an upward swing) or, your hunch is wrong and you have to buy back into the market at a higher price in which case you’ve missed out on some gains in the mean time.
Ultimately the outcome can only be known with hindsight and often not until quite sometime later. Which really brings me to my main point in this article:
We can’t control the markets but we can control our response.
At Moneyplanners, when it comes to helping our client build and protect wealth, we are strong advocates of the principle: time in the market NOT timing the market. The money we manage for our clients is a long term investment, typically 10 years or more and, in that time the law of averages (based on historical returns!!) suggests we can expect to see at least one significant downturn (20% plus) and a strong probability of a recession lasting at least 12 months. But in the last 90 years or so, there have also been extended periods of more than 10 years of market growth…such as our recent experience since the GFC. The point here is that historical averages are not particularly useful in predicting the future.
Our goal in helping you manage your investments is not to outperform the market…our role is to help you keep your head while everyone else is losing theirs.
Which brings us to our role as your financial adviser. It’s typically during downtime’s in the market that our role becomes really important…and, perhaps not for the reason you might think. There’s a ‘back of the napkin’ sketch in a blog entitled behavior gap which in a very simple way describes the most important role we play as your financial adviser:
Source: https://behaviorgap.com/blogs/articles/the-value-of-an-advisor
Our goal in helping you manage your investments is not to outperform the market…..it’s not to add “alpha” to market return…our role is to help you keep your head while everyone else is losing theirs. Our role is to be the voice of reason when investment markets are all over the place…by being there to help you control what you can control – your response to a market downturn. Sometimes that can be hard but, it’s been shown time and time again that by trying to time your moves into and out of the market you end up much worse off than if you’d stayed the course.
So, the recent market turmoil will likely have an impact on your investments..you’ll likely see a reduction in value. However, it’s not a loss unless you sell…your investment is for the long term and market corrections happen from time to time. But it doesn’t have to affect your long term investment goals.
Feel free to get in touch if you have any concerns about what is happening or would like to sit down and review your investment goals.
Further reading