Your patchwork quilt of reassurance

It’s often said that the only certainty is change. With the news at the moment, it seems the world is in an increasing state of upheaval. This can make people feel uncertain.

As always, when the stock markets are uncertain, they go up and down (or down and up). This movement can make investors feel uncertain.

That’s why we’ve put together a ‘state of the nation’ market update for you – it’s like a patchwork quilt of evidence to prove why you shouldn’t worry.

In conversations with our clients, some of them are starting to mention the news from Ukraine, the upcoming fuel price hikes, and recent movements in the stock markets.

We know it’s hard to avoid the news, but try not to let yourself be swayed by the media. Here’s why:

Maven Money Podcast

‘Maven Adviser’ points out that the market does what it’s always done, which is to move up and down, down and up. (Mostly up, as shown below.)

Meanwhile, investors move from fear to greed, and back again. During a market decline, many go towards fear. Feeling fear is human. Acting on it is often irrational.

A 2018 episode listed ’21 Investor Mistakes During a Stock Market Downturn’, including these three biggies:

  • Focusing on temporary declines, volatility and unpredictability instead of your financial plan
  • Trying to time the market. If you do this, you’ll end up selling low and buying high
  • Forgetting that all declines in a globally well-diversified equity portfolio are temporary

Remember, those are three things NOT to do.

Down, down, deeper and down?

Vanguard data, below, shows that it’s quite usual to have up to 5% drop-off (brown) when there is a crisis, but that value returns more strongly 6-12 months afterwards (green).

Betafolio sell-offs

Uncertainty always makes the markets wobble. Major news events cause volatility and day traders get busy. But, reassuringly, it doesn’t take long for markets to recover.

Greg Davis, Vanguard’s Chief Investment Officer, says: “An emotional reaction is natural. When it comes to investing, it’s best to resist the urge to act. It’s not easy, but in a situation such as this, we suggest investors steel themselves for what may come and try to keep emotions out of investing decisions.”

The only way is up!

Over the long-term, the markets decline in value roughly 25% of the time and increase around 75% of the time, as shown in this bull and bear graph from our friends at Betafolio.

UK Bull & Bears

As you can see, the dark blue areas (below the line) are when the UK markets fell as a result of an event. The cyan sections (above the line) are when markets rose. Historically, there has been much more time in ‘bull’ markets than ‘bear’ markets and that pattern is set to continue.

All we have to do is wait.

What are the facts?

You might be wondering what’s happening to your portfolio as a result of Russia invading Ukraine.

There is very little money exposed to Russia. You’ll only have investments over there IF you have funds in emerging markets. Even then, with Trivium 50 (for example), the percentage that’s invested in Russia is a tiny 0.29%. This means that, whatever happens to those funds, it won’t impact your entire portfolio.

Remember, we urge you NOT to keep constantly checking market movements, as they will only cause stress. We also remind you to keep the long view, and don’t worry about short-term market fluctuations.

With Trivium 50, values are down -4.99% during the year-to-date, but that’s still 4.14% up over the past 12 months, so even the current war hasn’t undone everything. We’ve had a run of good years, with the last negative one back in 2018.

What this means to you

When you have well-diversified funds, whatever happens in one part of the world or one sector might have an impact, but it’s likely to be cancelled out by what’s going on in other parts of the world or other sectors.

All the plans we build for clients are diversified.

The main thing that makes a difference to fund returns is the cost.

All the plans we build for clients are low-cost.

This market movement is normal and expected – and it too shall pass.

No matter what happens, our fundamental advice remains: Do nothing! Focus on what you can control. Cuddle up, keep calm, and carry on.

Most of our clients are good at this (they’ve been reading our articles!) Thank you for your understanding, patience and trust. Meanwhile, our thoughts are with those directly affected by the conflict. May it pass quickly.

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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