Following on from my Budget update email that was sent on 12th March, I thought it was worthwhile expanding on the market commentary and provide you further reassurance.
We’re still deep in the pandemic, this is a once in a lifetime public health emergency. In the investing world this is called a ‘Black Swan’, something you thought was impossible, until you see one.
Stock markets (humans) have acted as we’d expect, negatively. The stock market is a story, the story changes, the prices change. Now the story is very negative, when the story changes the prices will change again. The stock market overreacts in both directions. This is because the markets feed off two powerful human emotions, that of greed and fear. We don’t know with foresight when the market will ‘turn’, anyone who tells you they do, run for the door, it’s not an untruth, it’s a lie.
You already have a perfectly diversified portfolio, ideally suited to your long-term goals. Built to cope with the deep temporary declines we’re experiencing now.
I’m invested in my most volatile portfolio, so I have felt every drop of the decline, I have ‘skin in the game’, it’s painful to see my portfolio decline. But, understanding history and more importantly human nature, knowing that the correct thing to do is ‘do nothing’ will see us all through this. We have enough to deal with through the change and disruption of our lifestyles, let’s not compound the issue by making grave financial mistakes with our investments.
The nature of risk is that you don’t see it coming. Now for some good news. Going into this crisis we could not have been in a better position economically, a decade plus of prosperity, unemployment at historical lows, businesses with more cash than they’ve ever had and the personal balance sheets of individuals at a high. There’s never a ‘good time’ for a pandemic, but if I could have chosen a point in time, this would likely have been it. We also have a globally connected world and have all the utilities and resources to address this head-on.
When the stock market rises you don’t ‘win’ money, just like when it declines you don’t ‘lose’ money. You only lose money when you commit the worst financial action an investor can make, selling a portfolio in a declining market. This is the action reserved for the DIY investor and the financially failed investor.
As Warren Buffett says:
“The stock market is a device for transferring money from the impatient to the patient.”
Successful investors are patient, failed investors are impatient.
If you’re investing every month (which some of you are) this is a deep temporary market sale, which is good news for your automatic monthly investment premium.
There will be some good consequences from the crisis, such as:
– conscious spending, do I really need these things/items in my life.
– focusing on what’s important, people to spend your time with, places to go and things to achieve.
– a focused desire to becoming financially free sooner (investing more from a younger age).
I never like to make predictions, but I’m almost certain we’ll be heading into a global recession. Recessions are part of the natural business cycle. The stock market is usually ahead of the economic cycle. Don’t let the media scare you now with the big ‘R’ word. The economy expands and contracts, it’s what it has always done.
In the coming days, weeks and months, I fully expect further announcements from the government and whilst I do not want to reiterate the information in the news, I will endeavour to provide further reassurance and information where I feel it will help my clients.
If you wish to discuss anything please call my mobile, as always, I’m here for you.
