The Lessons of Time
The issues that worry investors today aren’t new.
Staying focused despite the day-to-day distractions of the market is never easy, especially during periods of economic uncertainty.
However, investors who seek the guidance of a trusted financial planner and remain committed to their investment plans, even when it’s tempting to head to the sidelines, are better positioned to realise their short- and long-term goals.
A Few “History Lessons” to Consider
The chart below shows how dramatically the stock market (as represented by the five-hundred biggest companies in the USA, who sell their goods and services globally) bounced back from its lowest point during four bear markets over the last few decades.
Of course, investors during these periods couldn’t possibly have known their investment would grow so dramatically … but they could have remained fully invested, confident in the knowledge that markets recover over time.
Don’t Let Emotions Drive Your Investment Decisions
Emotions can lead to irrational decision making and impulsive decisions that compromise the realisation of your goals.
Before you react impulsively, make a list of your concerns and revisit your goals. If your goals and/or priorities have changed, or if you believe your investment strategy is no longer appropriate given the economic environment, then contact a financial planner.
When there is fear and uncertainty in the air, when there is scary news that makes you question what you should do, that’s when it’s most important to talk to talk to a professional who will sit on your side of the table.
Understand Your Tolerance For Risk
Volatility is part of investing. You can limit it, you can defend against it, but you can’t eliminate it.
The important thing is to have a well-informed understanding of how much risk you can tolerate.
By having a well-informed understanding of your tolerance for risk, we can construct a long-term investment strategy suited to your needs.
Despite the best guesses – I mean, efforts – of journalists and active investment managers, it’s virtually impossible to tell in advance which asset class will have the best return in any given year.
Therefore, spreading your investment between different asset classes is an important tool to manage investment risk, especially during periods of market volatility.
Investors who stay the course have historically been rewarded for their patience.
When you look at market performance over decades rather than just a year or two, you find that while it may contract, it also expands — with the gains often concentrated in a handful of trading days.
For example, if you were out of the market on the best days in the last 20 years, your gain would have been less than half of what it would have been if you were invested during the whole period:
Identify your goals, needs and aspirations to align your short-, medium- and long-term goals with your money.
Most importantly, working with a financial planner can provide you with valuable insight and guidance on how economic issues, legislation, the markets, and specific investment strategies affect your financial plan.
Amyr Rocha Lima, CFP® is a partner at Holland Hahn & Wills LLP, a financial planning practice based in Kingston upon Thames. He specialises in working with successful professionals age 50+ helping them reduce taxes, invest smarter and retire on their terms.