We really hesitated to put anything out regarding the current market volatility as we didn’t want to add to the noise. But now that we’re a couple of weeks in, hopefully the hysteria is starting to abate, and we can take something of a measured of things. We want to reassure you that discomfort is normal, but also provide some context that things are not as unprecedented as they might seem…
“This time it’s different”
Source is something we haven’t seen before, but we HAVE seen the volatility before.
Volatility is normal.
Much more common than people think – COVID drop was deeper (24.2% – FTSE Global All Cap) than what we’ve seen so far (-17.1%) and if anything even steeper.
Markets fall regularly, eg:
– Price S&P500 – average 10% per year since 1926
– Averages are misleading – only 6 out of 98 years had average returns
– One in four calendar years are down
– One in ten years down over 10%
Calendar years can be misleading.
“The US market is too concentrated”
We’ve had this level of concentration before.
Magnificent 7 makes up 25% of the US market and the US market is about 65% of global stock markets by value.
But Mag 7 are global companies.
“I don’t have time to make it back”
Returns after shocks can be significant and quick.
Also, the best days often follow the worst days and quickly.
“Time IN the markets beats timING the markets”
Markets reward the patient.
Volatility is a feature not a bug.
Time is your friend.
Action (or inaction!) – What you need NOT to do?
Guard your media intake.
Don’t check your portfolio too often.
Was better when you got an annual statement.
DON’T bail out into cash – requires you to make two good decisions, doubly difficult.
Don’t invest money you’ll need to spend in the next 2-3 years – hence cashflow ladder.
Don’t rush to invest – be considered in everything.
Don’t ‘buy the dip’.
Just keep buying.
Stay calm. Remember – YOU HAVEN’T LOST ANYTHING…YET!
Don’t change your investment strategy – or timing – (as opposed to liquidation) to “less” or “more” risky…akin to the gambler trying to double up to recoup “losses”.
The longer term investment decisions you made organising your pensions and investments haven’t changed as a result of what’s just happened. These scenarios were already built into the funds you chose back in the day. This sort of volatility was what you said you could live with in that/those funds.
Chances are you won’t be needing to cash in the whole lot in one go, but take slices out over time. Whatever isn't taken out will recover.
