Managing Investments during turbulent times

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2018 has been a rocky road for investors, with any number of data charts, historic analogies and fables to consider

The economic cycle is a changing dynamic and periods of uncertainty can make even the most resolute saver worry.  In the immediate aftermath of drops in ‘markets’, nervous investors can make the situation even less predictable.
There are many drivers to the current market falls and increasing volatility;

 

 

  • Longer-term planning

    While markets are swinging wildly, short-term performance does not provide the best point of reference.  Make sure your holdings are diversified, so that you have a chance of ironing out the peaks and troughs

    There is no secret to investing, timing the markets is very stressful and difficult, because you cannot tell how investor sentiment will affect the day to day movements

    For those paying regular contributions, these cycles can add value in future, as the low points provide opportunity and lower cost acquisitions.

      • Recovery from 2008 financial crisis has been longest upward trend for some time and an element of ‘how long can it continue’ has unnerved investors
      • Trade wars between the US and China has had a dramatic effect in the last week, with tech companies taking the initial brunt of turbulance
      • Brexit negotiations have become a stumbling block, as investors want to have something tangible to base future decisions upon
      • Dollar strength has had a negative affect on Asian shares, which predominantly rely on Dollar denominated debt
      • Ending of Quantitative Easing (central bank supporting asset prices) – as asset classes transition away from the recent underpin of injected money, the process will be volatile
      • Divergence of economic performance, where the US is dominating and outpacing other countries in terms of growth, household income and business investment.  The Fed is dealing with this growth to stave inflation, but this is putting additional strain on other markets
      • Volatility is to be expected as markets consider the affects of higher base rates and rising inflation.
      • A large part of the daily equity price falls are driven by concenrs of a recession in the US, spreading globally.  Some view that the recent tax incentives will come back to bite in 2020, as the benefits wear off and the cost to the US Treasury are realised
      • Outside of the daily fluctuations, US growth remains strong supported by fiscal policy, inflation is picking up but not unduly, and the Federal Reserve has been clear on the path of future interest rates.  Elsewhere, growth is moderating but still firmly positive in Europe and Japan while Emerging Markets are facing some idiosyncratic challenges but are generally in good shape
      • On a broader basis global economic growth continues to be positive, estimated to be around 3.7% (IMF 24.09.18), although in areas of uncertainty such as the UK it has fallen – natural fears over Brexit have eaten into consumer and corporate confidence

Investment Plan

Having a plan is essential and keeping to it is where success lies.  Hoping for the best, will not work.

Review your ideals, risk assess your strategy, consider your timescales

The economic back drop changes over time and your investment strategy should consider those changes

Timing

Timing the markets is virtually impossible, but Time In the markets can pay off

Paying regularly has good advantages on a long-term investment.  Not only does it instill a sense of discipline to one’s investment habits but also avoids trying to second guess market movements.

Essentially, when investing in an investment fund, your contribution buys units.  When markets rise, you would buy less units, and when they fall, a higher number will be purchased.

As most investment funds fluctuate on a regular basis, your unit purchasing power does the same.  This process is called ‘pound cost averaging’ and it can make for a smoother ride over the longer-term.

Don’t make quick decisions

The temptation to pull your investments is often the first thought.  Cashing in can be expensive, even if it feels like a safer bet.

Many investment funds already hold cash reserves and once out of the market place, there is a cost to starting again later

 

Longer-term planning

  • While markets are swinging wildly, short-term performance does not provide the best point of reference.  Make sure your holdings are diversified, so that you have a chance of ironing out the peaks and troughs
  • There is no secret to investing, timing the markets is very stressful and difficult, because you cannot tell how investor sentiment will affect the day to day movements
  • For those paying regular contributions, these cycles can add value in future, as the low points provide opportunity and lower cost acquisitions.
  • Taking income from your investments?

Taking Income

  • Consider holding higher levels of Cash, so that you take your income from your cash reserves, inside or outside of your investment portfolio
  • Cash reserves do not rise and fall with asset prices, so your income is coming from a secure element
  • Consider the sustainability of your investment fund against your drawings, so that you can see how it could affect the long-term integrity of your income needs

 

Take advice

The amount of commentary and information on the worst days of a market cycle can be over-whelming
An experienced Adviser will have worked their way through similar episodes in the economic cycle and while they are all different, many aspects are the same
During tough market cycles, advice helps you take the emotion out of investing and provides an objective view
As experienced advisers, we will interogate the investment funds you hold, so that you can understand exactly where your money is invested.  We can also look at charges and the options you have so that any decisions you make are relevant to you and your expectations

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