13 October 2022
David Henry, investment manager at Quilter Cheviot, says:
“By and large, it has been a rotten year so far for investors and most asset classes, and therefore the majority of valuations might not make that pleasant reading.
“This may be recency bias in action, but it feels that this year has served up the toughest investing environment in recent times. Bonds, have of course, been terrible. Stocks have been propped up to an extent by the weakness of Sterling – but still not great. Hundreds of years of market history tells us that things will improve and recover of course, but that does not necessarily help stop the feeling in the pit of your stomach which can arrive at times like this.
“Investors have to remember, however, that corrections and resets are a necessary part of being an investor. Stocks do not just go straight up.
“‘Should we be doing something?’, is a question I often get asked during periods like this. “Doing something” can feel comfortable, like we are re-gaining control of the situation – but the simple reality is that as investors, we operate in a world of uncontrollables. The market does not care about when you initially invested, when you plan to retire, or how much conviction you have in that stock you just bought. If we accept that a large proportion of short-term outcomes are unknown and unknowable, then all we can do is focus on what we can control.
“The primary edge we all have as investors is behavioural. At times like this how you behave as an investor has a disproportionately high impact on your eventual outcome, and anything that helps your frame of mind can only be a good thing. As a result, these are five points investors should remind themselves of during choppy markets.”
Block out the noise
“Clearly the moves in the market are significant and unsettling. This has resulted in the news cycle painting a, correctly, negative picture. This is understandable and will no doubt catch the attention of many readers and investors. Ultimately, we are all seduced by pessimism.
“Folks who save diligently and incrementally amass fortunes for themselves through a lifetime of patience never get the headlines. As such, we need to take the things we read and hear with a pinch of salt and block it out before assessing the market further. The less you interact, the less likely you are to do something, the less likely you are to make a mistake.”
Do less
“This is not the time to make lots of changes to your investment strategy. The time for panicking has passed. If you find yourself constantly worrying about your portfolio value at the moment, make a note of this and then conduct a root and branch re-assessment of your asset allocation when the world settles down so you are taking the appropriate amount of risk.”
Prioritise personal finance
“If you are compelled to do something, start with the bread and butter of your financial plan. Can you afford to save more each month, or invest spare cash? For those who are net savers, lower prices are a godsend. You are a forced buyer of financial assets for the next ten/twenty/thirty years. May as well try to capitalise when both major asset classes, equities and bonds, are falling.
“Have you subscribed to your ISA allowance for this tax year? Can you afford to make further pension contributions? Should you be harvesting losses within your portfolio to offset against future years’ capital gains? Tax efficiency plays a huge role in your long-term outcomes and a financial adviser can be crucial at times like this.”
Accept that you will probably be wrong
“If you decide to add to your portfolio at the moment, well done for taking positive action – just recognise that there is every chance that you will be punched in the face almost immediately by further falls. That is just what the market does in volatile times like this. The chances of you “catching the bottom” of the market are infinitely small so accept that, in all likelihood, this will not happen. But by choosing to add at a discount, regardless, your future self will thank you eventually.”
Look after yourself
“Times like this can be disconcerting and thus we all need a break. Make a deliberate effort not to check the market or your investments on a regular basis. Whatever is happening is out of your control when markets are shut, and you can’t do anything about it. Use the time to do something else that you enjoy and get more satisfaction from.”
