If you can't accept volatility, don't play the game

Last month, we wrote ‘although volatility might mean a risk in the short-term, it doesn’t over the long-term’. Thanks to eagle-eyed reader, Richard Wetenhall, for reminding us that there is still risk over the long-term, even if it’s much diminished. We apologise for making you wince!

In this article, we explain more about long-term volatility.

The markets go up and down all the time, but do tend to grow over the long term. That’s why we do financial planning. We look ahead to what you need in future, and work out what you need to do now.

Have a look at this timeline from our friends at Finalytiq, especially the red and blue blocks showing which party was leading the UK government over time.

Timeline Chart 2020

Every election, I get asked: “Should I do ABC because the government is going to do XYZ?”

As you can see, it doesn’t make a blind bit of difference which party is in power and what they do.

The pattern of the graph is the same no matter what’s happening. It’s the same in the UK, the US and the world. The assassination of JFK made no impact. The line was on the up throughout WW2.

When I meet a new client, I sometimes use this graph to point out three areas where the stock market was in recession:

  • 1970s: Three-day dip when Heath changed to Callaghan
  • Late 1990s/Early 2000s: Tech wreck / Dotcom bubble burst and the markets took a breather for two or three years. If you sat it out, then-newbies such as Apple, Amazon, Facebook and Google are now an enormous part of the US market
  • 2008/9: Global financial crisis

Now we’re experiencing the unpredictability of a pandemic, and off the markets go again.

In summary, all we can do is drive home the reassurance of that upward trending line over the long-term. Don’t confuse volatility with risk. The risk reduces when you wait long enough.

And don’t get in the habit of constant monitoring and worry. The only time the market price matters is the date when you harvest what you’ve sown over the years.

Related reading

We’ve mentioned perceived volatility in a few articles before:

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