How should investors respond to Global events?

Just a few months in and 2022 is shaping up as a historic year for all the wrong reasons. With tensions around Brexit and the Covid pandemic easing, we now have yet another big event bringing uncertainty.

Ukraine & Your Investments 

Following the Russian invasion, we have been shocked by the devastating war that has broken out in Ukraine. While much of the information reaching us will be clouded by the fog of war, it’s terrible that so much suffering is being experienced. 

Whilst this blog covers possible financial impacts of such an event, let us not be blinded to the terrible loss and destruction felt by those who are on the ground. 

Modern-day geopolitics means that almost any event affects global markets. It’s natural to be fearful during such an uncertain time. Fear is a natural, human emotion. However, acting on this fear is entirely optional, an option that usually results in disastrous financial outcomes. Many investors never recover from these outcomes.

It may seem easy to remain calm and focused on your long-term financial goals when your investments are doing well but during periods of uncertainty with the potential for market volatility, it can be tricky to keep your focus.

Dealing with uncertainty

The unfolding situation in Ukraine is deeply worrying, like many other events in our history. However, mixing global events with investment policy is a dangerous approach. 

If you have a well-constructed long-term plan, no reaction is needed.

Even if you are certain that current events in Ukraine will negatively impact the world economy, it is not obvious how financial markets will react. In the long term, the economy and the markets move in unison. In the short term, there is no such correlation. The experience of the Covid pandemic proved this again beyond doubt. 

Successful Investing 

Successful investing is about avoiding expensive mistakes and being calm through all market cycles. This advice is simple to hear, but not easy to follow.

The key to successful investing is to construct your portfolio correctly on day one, and to avoid tinkering with it unless your goals or plans change. Trying to second guess world events or time market movements leads to investing failure.

The only benchmark to focus on is our clients achieving all their financial and life goals. Monthly or quarterly figures are a distraction from your long-term goals.

Ignore the Noise

During periods of extremes, focus on what you can control (your response) and not on factors you cannot influence (short term stock market movements). 

I understand that the temptation during a time like this is to move money into a “safe” asset like cash. However, this decision forces you to make two correct timing decisions. The first is when to come out of the market, the second is when to get back in.

Long-term investors should avoid the temptation to try this. Many have tried and failed before. The admission price for long-term investment returns is possessing the courage to do nothing when your natural instincts suggest otherwise. 

No one knows where the market is heading. A few people will make predictions that may turn out to be correct, but it’s impossible to know with foresight who they are and whether it was luck or judgement. 

There will be many more market declines over the course of your lifetime. Like every previous market decline, they will be temporary. The stock market has proven that it recovers after all world events, given time.

Barra Gorman

Chartered Financial Planner

The value of your investment can go down as well as up and you may not get back the full amount you invested.

This blog is for general information only and does not constitute personal advice.