Global markets are falling (again)

In recent months, investments have been more volatile than usual. Global markets fell sharply as fears over rising inflation and a slowdown in China’s export growth fuelled worries about the health of the world economy.

If you’re feeling nervous about your investments, that is normal. It’s hardwired within us. Whenever there is danger, our natural inbuilt ‘fight or flight’ system kicks in. Understandably, we want to protect against losses that may occur, or at least stop further losses from occurring. You may be considering changing course, or worse-yet cashing out altogether. This would be a mistake. Making such reactive changes is a proven way to turn a decline in value into an actual loss. Responding to market events, by either ‘cashing out’ or making changes to your investment strategy, is unlikely to yield the result you desire.

In essence, investing is not an intellectual activity. It is highly temperamental, and success comes down to your behaviour during a few key market inflection points. Feeling fearful is absolutely normal; it’s human. Preventing clients from acting on this fear is what I am here to do.

Short term volatility

Periods of uncertainty, volatility and fear are expected in markets. We have witnessed similar periods many times before. Investment markets will decline in value, with no seeming end in sight. Yet reflect back to the last investment wobble, and you’ll see that it was just that. As scary as it felt at the time, it was a temporary wobble. Fast forward a few months and it was barely noticeable. It came and it passed, in relatively short succession. And this too shall pass, although exactly when cannot be guaranteed, it just requires a little patience.

Sticking to the plan through thick and thin offers the best potential for a successful outcome.  

Long term risks

The number one enemy of the long-term investor is inflation – the silent but steady increase of prices over time.

In the twelve months to May 2022, inflation was 9% (meaning the cost of everyday purchases was 7% higher than the year before). The Bank of England expects inflation to continue rising, exceeding 10% by the end of 2022.

This means that keeping money in cash is a good way to lose 10% per year.

Barra Gorman

Chartered Financial Planner