The continued recovery from the pandemic, concerns around the cost of living, along with the turbulence of war in Ukraine have made for a volatile first half of 2022 in the global financial markets.
This can be unsettling for investors. It’s human nature to consider what impact global events will have on ourselves and our plans and to want to know if we should take action in response.
Financial planners play an important role in reminding their clients at times such as this that their financial plans are created with their long-term goals in mind.
They are constructed to be robust enough to accommodate a range of eventualities, from a change in personal circumstances to the disturbances in the global political order.
When we are plugged into 24hr rolling news and coverage of unsettling events, it can be helpful to have a coping strategy for managing your response and making sure you don’t succumb to a knee-jerk reaction that may not be not in the best interests of your future financial health.
It pays to remind ourselves of the words of successful and respected investors who have built careers around reminding us to keep our heads in times of turbulence, like author Nick Murray.
Manage emotions
“All financial success comes from acting on a plan. A lot of financial failure comes from reacting to the market.” – Nick Murray
Reacting emotionally to events is normal, particularly the size and scale of which we have been subjected to in recent years, which have affected nearly all of us in some way or other.
Understanding that we don’t have to act on those emotions when it comes to our finances and investments is an important step in gaining financial maturity and literacy.
If you are feeling uncomfortable about your position in relation to local or global events, reach out to your financial planner. They will be happy to discuss your concerns, reassure you and remind you of what you agreed with them when putting your financial plan together.
It’s only a loss if you sell
“Declines are temporary, gains are permanent.” – Nick Murray
While it’s important to be clear that not all gains are permanent, the broader point that Nick Murray is making here is a valid one. When we read about a fall in the financial market or value being wiped off stock prices, remember that a loss is only triggered on encashment.
Human nature has us believe we must take action when events occur. Selling when the market is down means you would crystallise these losses. Unless the withdrawal is absolutely necessary the advice would generally be to sit tight and wait for the markets to return.
If you have no immediate plans or pressing needs to sell your investments then stock market fluctuations should not concern you unduly.
In fact, a drop in the markets can actually be a good time to invest as there is potentially more value in stocks, which you will be well-positioned to benefit from when the markets climb again.
Tune out the noise
“Timing the market is a fool’s game, whereas time in the market is your greatest natural advantage.” – Nick Murray
Easier said than done, but it’s often said that the only days that matter in investing are the days you sell and buy. Everything else is just a distraction. Putting some distance between yourself and the sharp end of stock market fluctuations can be achieved by being more selective about the people, information and news you engage with.
The mass media publishes news for the masses. They work at a national or global level, and tailor their news according to what’s going to attract the attention of the largest amount of people.
Needless to say this is not a bespoke service that takes into account your own personal financial situation.
Keeping that in mind can put the daily cycle of negative headlines into a more manageable context, as can limiting conversations with others who have a negative mindset and outlook.
Keep the faith
“Investing is the age-old, never-ending emotional battle between fear of the future and faith in the future.” – Nick Murray
History has shown us that, over time, markets have always bounced back after dips, large or small, wars, crises, recessions and depression and therefore it makes good sense to assume that they will do so again. So this is perhaps less about a leap of faith and more accurately characterised as a considered act of empirical reasoning.
The stock markets are comprised of the most successful businesses on the planet, and these are led by the some of the most dynamic and creative people in the world. Entrepreneurs, innovators, strategists, inventors, people who excel in their field. Having faith in the markets is like having faith in our ability as a human race to respond and bounce back in times of stress and adversity, which is a positive sentiment we can all agree on.
Hopefully these tips will go some way to helping you manage your response to market fluctuations in an uncertain climate. If you would like any more specific advice with your financial and investment planning, please get in touch.
