Thinkpiece

05 Apr Thinkpiece

In this update: 

• Our attitude and the financial markets

In today’s market environment, and particularly in light of the recent market volatility caused mainly by newly announced tariff policies, investors can at times feel powerless in the face of these world events.

Indeed, no amount of investment prowess can stop us from being subject to negative market forces.

For those of you that have followed these pages for some time, you’ll know that we have been here before. That’s because markets follow cycles.

In fact, every year on average, we face what is known as a market correction, that is a fall of, on average, 13% per annum. Typically, these falls don’t persist for very long, and the market rallies and we all get back to some sense of normal (whatever that is!).

Do you remember what last year’s market fall was caused by, or the year before?

These corrections are short term in nature. On average, 1 in 5 of these can deepen to a bear market, that is, a sustained period of market decline of at least 20% from the previous market high.

For those expecting a detailed economic forecast, you’ve come to the wrong place. I will leave the economic forecasting to those that commercially justify their existence and reliance on providing such material. In fact, it is everywhere, as the media machine comes into full swing.

But what will change as a result of your viewing of this material?

Minimum exposure to the media should be a guiding principle for someone involved in decision making under uncertainty – including all participants in the financial markets.

Nassim Taleb

With the news this week, you may be tempted to change tack with regard to your financial plan and your investment approach.  If you do, I would argue strongly that you are simply reacting to the short term noise, and in fact you don’t have a well-thought-out financial plan and retirement or investment strategy at all.

What you have instead is a possibly unconscious and reactive tactic to avoid what everyone else is subject to. Taking bets on the way that this or that is going to move, and when, is an approach that rarely, if ever, will be successful. If it is, I would put it down to luck.

This is the territory of speculators, not investors.

If your retirement plan, or investment goal has been ruined by the news this week, then you probably didn’t have a sound plan in the first place, or you were expecting too much from your portfolio, or you didn’t understand markets and market volatility and you don’t understand the cycle of markets.

Again and again, people forget the time-honoured principles of investing over the long term. Instead, they feel that they or their advisers ‘should be doing something’ to fix the malaise.

Those people that are accumulating funds for the future, over the long-term, will know that occasionally markets fall and this presents them with an opportunity.

The stock market is the only market where things go on sale and all the customers run out of the store.

Cullen Roche

Alternatively, we can panic and garner potentially hundreds of different approaches to ‘solving’ our crisis, when in fact sound investing principles which regular readers of these pages will know, is to give it time………and much more time than you think.

What has happened in the markets this week is perfectly normal. The superficial cause of this may be different, as it is every time, but the underlying economic response of markets is what it has always been, to price in this new information.

Beyond Market Reactions

While these market forces can seem beyond our control, they offer us an opportunity to practice our poise, keep our composure, and present our indifference in response.

For investors, we can create a deliberate space between market events and our personal reactions.

When headlines announce tariff impacts or market plunges, a mature approach could be to ask such questions as:

How am I choosing to interpret this information?

What response aligns with my long-term values rather than my immediate emotions?

A Sound Approach

Ensure you have a well thought out plan, which you will typically make in conjunction with your trusted adviser. You’ll find their counsel very supportive when market turbulence strikes, and they will, hopefully, remind you of your long-term plan and objectives.

Recognise your reactions and develop a sense of not automatically acting upon them.

Adverse market conditions help determine who is really investing, and who is speculating.

Volatility is the price of admission. The prize inside are superior long-term returns. You have to pay the price to get the returns.

Morgan Housel

Rather than seeing oneself as falling victim to market forces, a different perspective can empower you to become an architect of your financial narratives, regardless of external circumstances.

Successful investing and financial planning may have less to do with predicting tariff impacts or timing market movements, and more to do with cultivating the internal freedom to choose one’s attitude even in uncertain times.

If you stand at a bus stop, eventually you’ll catch a bus. But if you run from bus stop to bus stop, you may never catch a bus.

Howard Marks

Your opportunity

If you’ve not yet put in place a sound financial plan and you’d like to know more, please feel free to contact us on 01626 305318 or via email here.

The value of investments can go down as well as up. You may end up with less back than you have paid in. Past performance is no guarantee of future returns.

The views expressed are not to be taken as financial advice. Professional advice should be sought before proceeding.