Navigating stormy waters

I’m sure you’ve noticed that the recent economic news is somewhat rocky. If you’re concerned about how to steer your ship safely through, scroll down to read this month’s article and/or give me a call on 01435 863787. If you’d like a more lengthy commentary, just ask, and I’ll send you a document from Betafolio. It’s quite technical but should help allay your fears.

It irritates me when the media says the current market woes were due to a few proposed tax cuts. In my opinion, they aren’t. After two years of lockdown, there’s a lot of pent up ‘stuff’ now coming home to roost.

We’ve had a good few years of low interest rates. They couldn’t go negative and were bound to go up sometime.

Western governments (all of them, not just ours) printed money to try to fix the lockdown problem.

We’re now facing ever-changing monetary policies together with rising interest rates and inflation mainly being brought about by rampant energy prices…

It’s a perfect storm.

What this means to you

Plan100 investment portfolios are made up of a mixture of bonds and equities. Usually, if one does badly, the other does OK. Recently, both components have gone down.

Trivium Sep 22

Equities (green) returned -9.43% over the first three quarters of 2022
Fixed income bonds (orange)​​ returned -16.80% over the same period

Source: Timeline

If you’re in equities, you haven’t suffered quite as badly. They are bouncing around as they always do.

If you’re in the bond market, they’re having a bit of a reset. However, yields are now increasing, so you’ll see a greater return in future.

Don’t panic about your pension

As a result, the values of all pension funds have fallen. Final salary / defined benefit pension schemes have had a particularly torrid time of it.

These schemes tend to hold a sizeable percentage in gilts, which they may have had to sell to cover their liquidity requirements even though gilt values were falling.

The problem is that the regulator put some funny rules on them. If those schemes were underfunded, they HAD to invest in gilts; they couldn’t invest in equities.

No one knows the details, but the Bank of England has been doing some fairly funky financial gymnastics to help the situation.

Note that this only affects you if you have a final salary / defined benefit pension scheme and not a personal pension.

For a more in-depth explanation, please read this article from Morningstar.

It’s not all bad news

Consider the words of Sir John Marks Templeton, the influential 20th century American-born British stock investor:

“The four most expensive words in the English language are, ‘This time it’s different.”

No, it isn’t different this time.

Recessions come and go, but the underpinnings of the market remain in place.

You are invested in solid profit-making businesses. In times of market volatility, their management teams will make the necessary adjustments so they can stay the course. By investing in the best companies in the world, you will eventually get a profit.

As always, we remind you to ignore the media. We’ve made a plan for you. All you have to do is stick with the plan.

Continue to invest in the stock market. Take a disciplined long-term approach. Wait long enough, and it WILL turn around.

This strategy is proven to work time and time again. For example, the return on our Trivium Market Cap 60 portfolio over 5 years still tops 20%.

P.S. I end with a personal plea. I don’t take the credit when the market goes up, so please don’t beat me up when the market goes down! I share your pain. I know it’s not easy, but I’ve done my best to prepare you. I always said a fall would happen but no one knows when it will be. For example, in 2017, I wrote Relax, a horrendous crash is coming.

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