Investment Markets – We Don’t Know What Will Happen & That’s OK!

At this time of year, you may have been bombarded with investment managers giving their views and predicting what will happen in 2024, with very little recognition they have been very inaccurate in previous years and no reason to think they will be better this time. Whilst it is understandable that investors may be concerned about their investments and like some certainty, falsely trying to provide this where it doesn’t exist is at best pointless and can be detrimental for financial planning purposes.

Instead of attempting to rely on any predictions, it is best for investors to plan for the uncertainty accordingly rather than taking a gamble in the hope that they will get lucky. There will always be short-term volatility in investments, but this shouldn’t be unexpected or a reason for investors to be concerned. Financial planning should really take this into account. Contingency funds should be in place to cover any short-term needs and the negative impact of taking large withdrawals while the investment markets are at short-term lows.

Long-term perspective

Throughout the last 100 years, there have been crises – wars, pandemics, economic meltdowns, political scandals, etc. – but the markets have always recovered. It is important as investors to remind yourselves of this when things look scary in the short-term.

If an investor expands their point of reference and takes a longer-term view, history has shown that there will most likely be another bull market, much stronger than the current downturn, which will steer the capital markets towards their permanent advance, reaching new heights again and again. Although short-term performance can often look concerning, when we zoom out to 10 years or more things look a lot smoother.

Sticking to the plan

Irrespective of the financially troubling times we are currently living in and the contributing factors, investors are typically more likely to reach their long-term goals if they remain invested and avoid short-term decisions that could potentially take them off course.

With any other purchase, people are more tempted to buy when prices are temporarily lowered and the situation shouldn’t feel any different with investments but it does. Continuing to invest when markets fall, however scary it may seem, is one of the key elements to long-term investment success.

Comment

The key process in finances is simply to have a plan and stick to it. We need to control what we can and not try chasing after things we can’t and looking for certainty where it doesn’t exist. At Nelsons, we are always here to chat with our clients to reassure them and amend plans if personal or legal circumstances change but we always advise them to avoid knee-jerk reactions or giving into fear. With a long-term plan in place and an expectation that there will be uncertainty along the way, it can make things much easier.