Big mountains. Little icebergs.

We’re going through unprecedented times, and stock markets are falling around the world.

We know it can be emotional to see your hard-earned savings seeming to disappear, especially when you’re no longer earning and can’t replace them.

But this is the time you really need to pay attention to the advice we’ve been sharing with you.

We hope you find this article reassures you slightly, and that you and your loved ones stay well.

Our message stays the same.

  • Don’t follow the media (Remember, they rely on drama to grab attention, and it can be hard to avoid getting sucked into the panic)
  • Don’t keep checking your portfolio (Because regular monitoring can lead to stress and worry)
  • Do nothing (Stick with the plan; it’s a good one)

If you sell now, you will realise the losses. If you wait, the market WILL rebound.

We support all our advice with evidence, so here’s the data that proves what we’re saying.

Bulls and bears

Look at this timeline from Finalytiq showing the UK markets from 1925 to 2019.

The peaks (mountains) climb slowly and fall quickly – notice that they’re a lot bigger and last a lot longer than any of the troughs (icebergs).

The cause of the current market drop may be different, but the pattern is the same – and the upside can return surprisingly quickly.

The market was probably looking for an excuse to reset after one of the longest bull markets in history

Here’s a quote from financial historian Prof William Goetzmann of Yale University, who examined what happens after serious market declines in a study spanning over 100 global stock markets over three centuries. He concluded:

The probability of a large positive return is higher following a decline in the market of at least -50%. Returns following a severe crash are on average more than 10% higher than those following a market gain. We also find some evidence in our broad sample that more modest crashes exhibit the opposite dynamic. Declines on the order of -10% to -20% are more likely to be followed by another decline.

Diversification, diversification, diversification

Another message we keep repeating is that your portfolio should be well-diversified, both geographically and by asset class. The reason is to reduce your exposure to market downturns like this.
In the same way that you can’t apply averages to any specific individual, what happens in one market doesn’t necessarily apply to you.
When you follow the news headlines, you might think your own pensions, investments and ISAs have fallen by the figures they quote. However, if you see the FTSE index falling by 20%, it doesn’t mean that you’ve “lost 20%”. Because, with a diversified portfolio, your money won’t only be invested in the FTSE, it will be invested all over the world.
To prove it, view this PDF showing cumulative 6-month performance:

Plan 100 Portfolios compared to the market PDF

  • On its own, the FTSE is the biggest faller (D)
  • A globally diversified portfolio that’s all invested in equities is (C)
  • Most of our client portfolios are somewhere between (B) and (A) depending on their own personal risk profile

We know the current financial situation isn’t easy, but we hope this helps put it into perspective for you.

Business as usual

With a global pandemic underway, nothing is ‘normal’. But there is no change to our ability to support you. The Plan 100 team have always worked remotely so our level of service is unchanged, and we’re happy to discuss any of your concerns. We’re here for you. We’re here to help. Just give us a call.

Useful reading

Most of our clients are de-cumulators (retired) rather than accumulators (earning). We empathise with your situation, and are giving you the best advice (even if it might not sometimes feel like it).

We’ve always said a fall in the markets would happen, but nobody ever knows when. If you need further reassurance, you might like to ponder our previous rants, teachings and articles on the subject:

 

Name: Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100