Does investing strike “fear” in you? We once heard somebody say the word “fear” stands for “False Evidence Appearing Real.” That seems to apply to investing. Here’s why.
The stock market makes some people nervous. This can be especially true for who grew up during or remember the Financial Crisis of the late ‘Noughties’. Not only did these folks see market volatility at its worst, but they also came away with negative impressions about the financial markets in general.
The truth is that the market is neither a one-way ticket to instant riches nor a dangerous game for insiders only. There is risk involved in any kind of investment, but if you understand how the market operates in the long run, then the rewards can be significant.
By understanding the following three important facts about the market, you might be able to turn “fear” into “False Evidence Appearing Real” and not get scared out of letting your money work hard for you in the market.
The market tends to move in long cycles.
The amount of info we have at our fingertips makes it tempting to check in on our investments weekly, daily, or even hourly. As a financial professional, though, we take a much wider view of the markets. And while past performance is no guarantee of future returns, the history of the market continues to trend upwards.
Consider the S&P 500 Index (the main US market, not the Dow Jones Index, as this is made up of only 30 Companies so not representative of the market as a whole). If we go back and look at all the bull (upwards) and bear (downwards) markets from 1926 to 2017, the
average bear lasted 1.4 years and resulted in a 41% loss on average. However, the average bull lasted 9 years, and gave investors a 480% gain on average, according to First Trust.
When volatility strikes, patience is usually a good course of action. Your financial plan is designed to provide for the rest of your life, not for one bull or bear cycle. Instead of panicking when the market dips, try to think of volatility as a tax that investors pay on the wealth that the market can create.
Think of your investment like a bar of soap – the more you touch it the less you have! Timing markets is nigh on impossible nor is predicting market swings (thinking about this logically, if we could predict these things, we would do something to prevent them, so they would never happen!) So, we don’t spend time adjusting investments or portfolios to attempt to anticipate these short trends, as we know the only sure indicators to long term success is discipline, patience and cost (constant tweaking and adjusting incurs additional cost).
To add support to this I am going to include a quote from perhaps the most famous long term investor there is , Warren Buffet, a man who started investing at the of 15 and is now estimated to be worth $73billion. His basic philosophy is simple:
“Long term, the stock market is going to be higher, and I have written that many times. In terms of what it’s going to do next year or tomorrow, I have no idea. Never have, never will. Our favourite holding period is forever”
Investments carry risk. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
So if you do find yourself checking in on your investments as regularly as you check your email, maybe think about uninstalling that app – or calling us.
Call us for an initial assessment of your current situation (at our cost) and see how we can help you plan for your desired lifestyle: Office 01226 446135 or Email andy@hartcliff.com
Sources: First Trust,
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