Keep calm and don’t panic

Ex-heavyweight champion boxer Mike Tyson had a famed saying: “Everyone has a plan until they get punched in the face.”

This is true of all plans, in particular financial plans. At Equilibrium, we are strong believers in the merits of a financial plan, organising a client’s wishlist and then prioritising different objectives and creating an overall strategy for their money.

Even though it’s definitely worth remaining flexible (in response to changing circumstances such as children or divorce for example), plans need to be rigorous to testing times. Never has this been more so than in recent months and indeed years, experiencing a global pandemic, the Russia-Ukraine war, rising energy and fuel prices to name but a few.

Our investment team has already written about the recent volatility in markets, what has caused these drops and how the firm has reacted, which has hopefully provided some reassurance. With this in mind, I would like to share some thoughts on getting through, and even capitalising on, these periods.

• Remember the ‘why’

Why invest? Asset allocation is one of the most important investment decisions because some asset classes will react differently to the same news than others. With any investment, there is a risk of ups and downs and whilst this cannot be eradicated, the diversification of a portfolio can help to reduce volatility.

We wouldn’t recommend investing funds which are needed in the near future as being a forced seller could lead to locking in a loss.

• Don’t look too often

We understand the need to stay informed and up to date but what good will constantly scanning your phone for market updates do?

“I fear the day that technology will surpass our human interaction. The world will have a generation of idiots.” – Albert Einstein

With websites (and in particular social media) optimised to attract eyeballs, it’s very easy to slip into habits we wouldn’t necessarily choose. By checking investments everyday or even more, not only takes you on an unnecessary emotional rollercoaster, it also undermines your long-term investment strategy.

A long-term view should be taken when it comes to investing, as markets by their very nature will go down and up – remember, it’s a marathon, not a sprint.

See our related article here, in which Investment Analyst, Graeme Black, takes a closer look at the risk and return often associated with investments.

• Avoid knee-jerk reactions

In most situations, the harder we work the better the results, but when it comes to investing, inactivity could pay dividends. The last thing you want to do in times of emotional stress is make panic-driven decisions.

It can be hugely tempting when an investment isn’t working out well to pull the trigger and sell due to our natural aversion to loss; but markets rise and fall, so you may come to regret this knee-jerk reaction when markets eventually calm down.

Commit to ‘sleeping on it’ and give yourself time to think through any investment decision.

• Know the background

Despite what you might hear on the news, this is not an unusually scary time to be alive. It might not be obvious from the headlines but global PMIs (a measure of economic health in the manufacturing sector) are all growing (Source: IHS Markit) and most quality of life statistics have been going up for years (Source: Life Expectancy – Our World in Data).

Global stock markets have been a long-term driver of returns through two world wars, more recessions than you can count, entrance to the EU and the subsequent exit, so it’s hugely important to keep perspective especially since investment is a long-term game.

Legendary investor Sir John Templeton once said: “The four most dangerous words in investing are: this time it’s different.”

A particularly insightful book I’ve read recently, Factfulness: Ten Reasons We’re Wrong About the World – and Why Things Are Better Than You Think, may just change the way you see the world and help empower you to respond to the crises and opportunities of the future.  

• Don’t confuse risk with volatility

The only risk that matters is not having enough money at the time you need it, in order to the live the life you want. Ask yourself, do you have the capacity to still live your life if an investment failed?

Markets will always see volatility, it’s the nature of the beast. The aim is to not be exposed to more risk than you are comfortable with.

Keeping a level head and a long-term view in a time of panic is not an easy thing to do and despite everything, you’ll still be going up against human nature. Staying focused on your long-term financial plan and your end objectives is crucial and this is where a financial planner can play a pivotal role.

As a financial planner, one of the most important parts of my job is being able to keep a calm head and help navigate my clients through testing times. It also helps to remember that our investment team continuously monitor, tweak and tilt our portfolios to provide our clients with the best possible risk-adjusted returns during times of volatility.

So, if you’re unsure about markets and want your investments to avoid a knockout blow, why not book a chat with one of our friendly experts here.

This blog is intended an information piece and does not constitute a solicitation of investment advice.