In January 2016, economists at the Royal Bank of Scotland issued a note* to its clients warning of a ‘cataclysmic year’ for investors, where stock markets could fall by up to 20% and oil prices could slump to $16 a barrel.
It went on to recommend that their clients “Sell everything except high quality bonds. This is about return of capital, not return on capital!!”
It said the current economic situation was reminiscent of 2008, when the collapse of the Lehman Brothers investment bank led to the global financial crisis.
Fast forward to December 30th 2016 and the FTSE 100 closed at a record high of 7142.
The index rose 14.4% over the course of the year.
Hmmm….
Predictions are worthless and pointless
The renowned economist J.K Galbraith once said: “Pundits forecast because they are asked, not because they know”.
The economy, the markets and indeed the future cannot be consistently predicted or timed.
The only way to capture the full potential long term returns of the great companies of the world is to be invested in them and be willing to accept that there will be temporary volatility but most importantly, to have the strength of mind to sit tight when a storm comes – which it inevitably will.
Planning for your future
Recently, whilst at a social event someone asked me what the FTSE 100 had closed at for the week. This person was (in my view) strangely surprised when I replied, ‘I have no idea, what did it close at’?
I am a Financial Planner. The clue is in the name, I help my clients PLAN for their financial future whatever the weather and I do not take short term economic forecasts into account when composing long term financial plans or portfolios on behalf of my clients. Instead, I focus on the evidence, and the evidence shows that equities offer long term superior returns, but by their very nature they are volatile in the short term.
Current economic events have no bearing on the long term function of your financial plan.
As an investor, you should expect a significant fall in share prices every 3 – 5 years or so, but understand that all share price declines are temporary and are merely downward ‘blips’ on an otherwise upward soaring trend.
The risk to you as an investor is not short term volatility, it is your emotional response to it.
Investment performance is unlikely to be responsible for the failure of your financial plan over the long term – investor behaviour is.
Behave yourself
A proper Financial Planner will bring value by modifying your behaviour. They will walk you away from the cliff edge and remind you to keep your head when all around are losing theirs during the next ‘crisis’.
If your Financial Planner can help you avoid doing the wrong things, at the wrong times, for the wrong reasons – their value to you will be immeasurable.
Conversely, if your Financial ‘Adviser’ spends most of your meetings talking about herself, or the economy/markets/investment returns and NOT talking about you and your Lifestyle goals – then you need to sack that ‘Adviser’. She is clearly more interested in selling you the drill than she is with finding out what type of hole you need.
*(If you are really into self-flagellation then click HERE to read the RBS note referenced above. Disclaimer: If you click any link in this email, you will be departing from the regulatory email of Clarity Lifestyle Financial Planning. Neither Clarity Lifestyle Financial Planning nor Intrinsic are responsible for the accuracy of the information contained within the linked site).
Until next time…
If you are looking for a sharp suited salesperson to flog you a drill, then unfortunately you are in the wrong place. But if you are looking for a collaborative partner to help you and your family succeed financially, then hit me at planning@claritylfp.co.uk and let’s see if we get along!
Financial Planner | Financial Adviser | Investment Advice | Pension Advice | Insurance Advice | West Yorkshire
Recent Comments