Trying to beat the stock market is a game for rich people. Only they can afford the inevitable disappointing results.
If you are investing to accumulate wealth, forget trying to time or beat the market. Instead, have enough set aside in cash to cover emergencies and planned spending for the next 3-5 years and forget your investments even exist.
Stocks will fluctuate, whether you look at them everyday or not.
(The value of investments and the income they produce can fall as well as rise. You may get back less than you invested).
Do nothing
Investing is the only part of life that I know of where you are rewarded for doing less and less.
Where inactivity gives you more.
The great Warren Buffett (consistently ranked amongst the top 10 richest people in the world) said that his own company’s investment strategy is based on ‘lethargy, bordering on sloth’.
If blissful ignorance of the up’s and downs is good enough for him, then it will be good enough for most of us too.
I like to think that when the next ‘crash’ hits us, investors will be able to hold their nerve and focus on the long term. But that shit aint the truth.
The truth is that most people don’t have the courage to ‘play dead’ if a bear is charging at them.
Oh no, they want to outrun the bear – and it doesn’t end well.
We humans are fallible. We have behavioural biases that we are all too often completely unaware of.
I work closely with clients daily, I know the trends.
Drawdown
This strategy will also apply if you are in drawdown.
Having a cash buffer will help to hedge against the risk of ‘pound/cost ravaging’ in drawdown, which is where you make withdrawals from a declining portfolio only to exacerbate the downward spiral.
Right now, the markets are expensive. It is only a matter of time until we experience a major correction and when we do, ensure you have a strategy in place, because the last thing you want to be doing is drawing down from invested capital for any kind of prolonged period during a correction. That would be a spectacular way to destroy your wealth.
Remember, the value of your portfolio is only relevant at the point you choose to sell out of it. So, if it is declining in value due to a correction – try to supplement your income/capital needs from other sources.
How can a Financial Planner help?
My job as a caring and empathetic Lifestyle Financial Planner is NOT to manage investments, it is to manage investors (like you!) and modify their irrational behaviour.
I will walk my clients away from the cliff edge when they have accidentally subjected themselves to a financial article predicting Armageddon.
I will help them to keep their heads when all around are losing theirs.
I will help them to avoid doing anything that is financially self-destructive.
And I am dedicated to their success.??
Until next time…
If you are looking for someone to tell you when to get in and out of the financial markets, then unfortunately I am not the Financial Adviser you are looking for. 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
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