by Andrew Dines
Director & Chartered Financial Planner
Modern life provides us with so much news and information, which focuses on the here-and-now, that it is easy to be overwhelmed with the feeling of doom and gloom. The list of things to concern us is long and worrisome; Donald Trump adopting an increasingly protectionist agenda, a Trade War between the US & China; and fractious Brexit process and no deal exit looming, to name a few.
The natural extension of this is to worry about what the impact of all this uncertainty will have on your investments and in turn, on your future wealth and goals. The first mistake is to believe that the world is falling apart around our ears. It most certainly is not. The second mistake is to think that your investments need to be repositioned to mitigate these events.
There are four key reasons why portfolio tinkering is unlikely to be a sensible course of action.
1: today’s ‘unprecedented’ turmoil is no different to how it’s always been
Today’s worries dominate our thinking; but can you remember what you were worrying about a year ago, or two years ago? Probably not. It has ever been thus. The overwhelming evidence demonstrates the relentless upward trajectory of purchasing power for those patient and disciplined enough, to stay the course.
2: bad news sells – so don’t ignore the underreported good news
We are all aware that bad news sells. For example, the Office for Budget Responsibility (OBR) delivered a ‘gloomy’ forecast for growth of ‘only’ 1.9% for 2019. Yet, the UK economy is still growing; remember too that this slow down comes after a period of growth that has outstripped much of the developed world for the past few years. It is not all bad news.
3: the futility of futurology
Futurology is the financial markets’ version of astrology. There is a huge industry out there from the IMF to investment banks, academics and BBC reporters all peddling their own view of the future. These futurologists have one thing in common; they are nearly always wrong in their predictions, and are rarely held to account for their poor forecasts. Take forecasts with a pinch of salt.
4: the news is already in market prices
It is normal to be worried about the potential impact of what is going on in the world and how this will affect markets. The reality is that you are not alone; in fact, all active investors have some view on how Trump, Brexit, Venezuela, or the Federal Reserve in the US will impact bond and equity prices. These global, diversified view-points are already reflected in the equilibrium price of securities, agreed freely between buyers and sellers.
Well-structured investment portfolios seek to ensure that any market conditions can be weathered in the future, whatever drives these storms. A highly diversified portfolio, balancing global equity assets with high-quality shorter-dated bonds, is well positioned to do so.
Try not to worry.
Start by watching the news less.