In his 2010 book, ‘The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between’, Financial Adviser and Author, William Bernstein, wrote: “The present investment landscape is in many ways as extraordinary as any seen in finance, but its outlines are still easily understandable by those with a good grasp of the calumnies that have savaged investors in previous centuries.”
Six years on, we are facing Britain’s somewhat surprising vote in favour of leaving the European Union, which caught the markets off-guard. See our recent article on the EU Referendum Result. We not only have to make sense of the implications of the country leaving the EU, but also of the imminent political instability, with the leadership of both major parties in disarray.
Last week we published an article on The Outcome of the EU Referendum and Your Portfolio in which Dominic Lobo listed the three main risks that investors now face:
- Greater volatility in the UK (and other) equity markets
- A fall in Sterling against other currencies
- A rise in UK bond yields (and thus a fall in bond prices)
Dominic also explained how we mitigate each of these risks for those clients who invest in one of our AstutePortfolios:
- Global diversification of equity exposure
- Owning non-Sterling assets and currencies in the growth assets
- Owning short-dated, high quality and globally diversified bonds
In these past few days, the FTSE-100 and GBP Sterling have been volatile, but are starting to display some confidence. However, as events continue to unfold, market gyrations are likely to continue before the dust settles.
The most important take-away from the past few weeks is that investing successfully isn’t about trying to predict the market. Europe’s politicians, media and financial markets are currently reacting to an unpredicted outcome. We cannot control the markets and we cannot consistently predict how or when they will fall and rise. The only thing that we can hold onto with some certainty is that, historically, markets recover and perform in the long-term.
Carrying out regular review meetings with your Financial Adviser, which utilise a combination of prudent financial planning and a long-term investment strategy in a globally diverse portfolio, should ensure that you can afford to withstand any short-term market volatility. I’d also highlight that the greatest risk that investors face is not a downturn in the market, but ‘fear’ itself. Andrew Pereira wrote a really good article on 8 Common Investor Biases, researched from the study of so-called Behavioural Finance, which is all about how our emotions risk leading our judgement and investment decisions. I recommend that you have a read.
The fate of the remaining European Union, and the Euro itself, hang in the balance. I, for one, am very interested to see how events unfold in the coming weeks and months. However, to quote Bernstein, “No matter how well an investor masters the theory of investing, he or she is lost if he or she lacks the ability to coolly observe extraordinary current events and say ‘I’ve seen this movie before, and I know how it ends.’”
So, no matter what the Doomsday Sayers may be saying, it’s business as usual and in this time of heated debate and uncertainty, we should all remember to keep calm and stay the course.
This article does not constitute financial advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner to take into account your particular investment objectives, financial situation and individual needs. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections.