The start of the year has been an abrupt reminder that investing is not for everyone. We each earn our long-term growth by successfully handling difficult periods like this one. When all we receive in the interim periods is additional growth and income, it takes no personal effort at all.
Most of us have been investing a long time, so we have already handled many similar periods and have the scars to prove it. Covid – 19, the last worry about the rise in inflation in 2018, Brexit, Greek debt worries, Greek debt worries again, Cyprus default, The Great Financial Crash. All of these periods have been successfully navigated in just the last 13 years! We should get an achievement badge for each, we could wear them like an astronaut wears his mission patches.
Is this fall unusual?
Investor sentiment begins in the US and spreads globally, so let’s have a look at US data. The Nasdaq Composite index is the growth (riskier) index in the US. A correction is a greater than 10% drawdown from a high, the Nasdaq is currently down 15%. This is the 66th time since its inception in 1971 it has suffered a correction. The question is will this fall continue?
24 out of the previous 65 corrections resulted in a continued fall of over 20% – 37% of the time.
41 out of the previous 65 corrections did not result in a fall of over 20% and resulted in a buying opportunity – 63% of the time.
Using data from the S&P 500, the (major) index in the US we can see what is normal. A 10% correction for the S&P 500 occurred at some point in the year 63% of the time. More a normal occurrence than an abnormal one. Take a look at the table below.
|Losses||% of Years|
|5% or worse||95%|
|10% or worse||63%|
|20% or worse||26%|
|30% or worse||10%|
Drops are normal.
Our feelings range from “So” through disappointed and occasionally to distressed. Remember though, the markets will do what the markets will do, they do not care about our feelings, but we do have a choice in how we feel. Some investors take these drops in the current value in their stride, for those who don’t the following “tools” are for you.
You are not alone
We hold shares directly because it is cost advantageous. Funds also hold shares as do pension funds. The value of any individual share is identical irrespective of where it is held or who owns it. With platform holdings we can see fluctuations daily, fundholders typically look 3-4 times a year, members of company pensions perhaps once a year. Everyone loses however at the same time. I believe it is important to check often to see the regular ups and downs. By doing this it teaches us that what doesn’t kill us makes us stronger and that values continually ebb and flow. But don’t torture yourself! Accept every investor is in this and if needs be, just look away for a while.
You are not your money
You shouldn’t feel down because your investments are down, neither should you feel up when your investments are up. Get busy living instead. We have no clients who should change any plans just because top line values are down from where they were.
Giving back some of our gains
If you have been an investor for at least 6 months, the current drop in value is equal to the amount of growth achieved since July in our Moderate Portfolio. If you are in a risker portfolio; Adventurous, AIM, Go For Growth – you have accepted you are taking higher than average risks. Therefore the growth will be higher, but expect bigger setbacks.
Hopefully this isn’t the finish line
We look after life savings for – er, life. Until we cease to draw breath, and most likely thereafter, our life savings will continue to fluctuate. Sometimes down but thankfully most times up.
No decision is needed by you
Although we tend to forget our bad investment experiences as a whole and remember mostly the good experiences, that isn’t the case with me. We do well by expecting the best but always planning for the worst. We always have contingency plans in place and know what we most do . We will do what we have always done. Once we really know which way the wind is blowing we trim our sails to gather maximum forward motion. Our revised portfolios are ready to go, but for now we need to ensure there isn’t something bigger out there which needs considering. It will be another big week of news this week as some of the leviathan businesses of the US report their Q4 earnings. Companies that occupy a 25% proportion of the S&P 500.
We always carry a coat
For almost 2 years we have borne the cost of carrying a healthy percentage of cash across most investors portfolios. Cash that doesn’t go anywhere. This is precisely why we do that, it doesn’t go anywhere. Soon could be the time to slip that coat on, after all, the investment environment has begun to take a decidedly wintery outlook. Deploying additional cash gives us the ability to invest in some bargains, selling later when warmer climes return. We have done this after many investment blips over the years.
Withdrawals are always available
We never invest in anything we can’t sell. Nothing is locked-up. If you had planned to take a large cash withdrawal or a series of regular income withdrawals, you can still take that withdrawal. Your required income or withdrawal has probably been held as cash if you had previously made us aware of your intentions.
We have your back
Talk to us if you need anything specific, no choice of investment portfolio has to be forever. You are free to choose any or many at any point. All of the data required is shown under the tab above Our Performance