Thinkpiece

30 Sep Thinkpiece

Why Good Financial Principles Matter When the World is Spinning

In this update: 

• Financial Planning principles in practice

However you get your news, it wouldn’t have escaped your attention that it seems like the world is currently careening downhill.

Whether it’s volatile energy markets driving up household bills, inflation threatening to creep back up towards the 3.5%–4% mark, or the Bank of England playing a tense waiting game with interest rates (currently holding steady at 3.75%), it is entirely normal to feel a sense of financial vertigo! 

If you also include the shifting global tensions and constant chatter about fiscal squeezes (ouch!), you have a recipe for financial anxiety for all but the most stoic.

Remaining grounded

When the big picture feels like a runaway train, human nature tempts us to react. 

We want to do something to resolve matters! But what? Shall we sit in the corner and wait for it all to blow over?

Good financial planning isn’t built for calm weather. It’s structured precisely to weather the storms you didn’t foresee. 

Applying sound financial principles matters most when things feel chaotic. This is the trick to keeping your head while everyone else is losing theirs.

In times like these, it helps to recall that there have always been times like these.

Paul Harvey

Some Helpful Principles

Principles are often conceived when something is ingrained in wisdom. It is no different with Financial Planning.

Here are some for you to ponder:

Separate the Noise from the Signal

The 24-hour news cycle thrives on drama. Words like crisis, shock, and volatility generate clicks, but they make terrible investment strategies.

Economics teaches us that cycles are normal. Economies expand, they contract, energy prices fluctuate due to geopolitical strains, and central banks adjust interest rates to counteract higher inflation that may or may not be coming down the road. 

So, when you see headlines that tell you that the sky is falling down, take a moment and step back. 

Your long-term financial plan is a marathon, not a sprint. Short-term turbulence is just part of the course layout.

As the legendary investor Sir John Templeton astutely noted – ‘The four most dangerous words in investing are: ‘This time it’s different.’ ‘ It never is. Cycles repeat, and cool heads prevail.

Cash is a helpful cushion, but not a strategy

When uncertainty peaks, the temptation could be to panic-sell investments and fly to so-called safety in cash. 

Choose your risks wisely. Cash is a poor hedge against inflation. Your money will lose value if you hold it in cash over the long-term. 

A ship in harbour is safe, but that is not what ships are built for.

John A. Shedd

A sensible response could be to maintain an emergency fund (something like 3 to 6 months of essential expenses) for peace of mind but let the rest of your wealth work for you. 

Other asset classes like equities and bonds (in combination) have historically been the most reliable tools for outpacing inflation over the long term. This is subject to your regulated financial advice, and you must talk to your adviser before investing. 

Time-Tested Fundamentals

When you don’t know what the markets will do next (and no one does!), focus exclusively on what you can control:

• Diversification: Don’t put all your eggs in one basket, one sector, or even one country. A globally diversified portfolio absorbs regional and sector-specific shocks much better.
• Pound-Cost Averaging: If you are regularly investing (like into a Stocks and Shares ISA or pension), market dips are actually your friend. When prices are low, your regular contributions buy more units. When the market recovers, you reap the rewards.
• Live Within Your Means: Keeping lifestyle creep in check and managing high-interest debts gives you a significant psychological and financial buffer against economic volatility.

This Too Shall Pass

Every generation faces its own unique economic bogeymen—from the high inflation and interest rates of the 1970s and 80s to the financial crisis of 2008 and the pandemic of 2020. Yet, global economic resilience has consistently triumphed over economic difficulties.

We suffer more often in imagination than in reality.

Seneca

Sticking to your principles when the world feels like it is turning upside down isn’t about being blindly optimistic. It is about acknowledging that discipline beats emotion every single time. 

Seek Advice

If the global economic mood is making you uneasy about your financial planning or your long-term strategy, you don’t have to navigate the fog alone.

Talk to a trusted adviser who has the perspective to see beyond any immediate anxiety or perceived gloom.

The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioural discipline that is likely to get you where you want to go.

Benjamin Graham

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.

This post is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. 

Information herein is believed to be reliable but Stover Financial Planners Ltd does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any regulatory duty that Stover Financial Planners Ltd has.