The markets so far this year have left many feeling rattled. In this guest blog Tim Noonan (author of Someday Rich) provides some insights to help calm investors that are worried.
The main thing to remember is that everyone feels rattled by the markets so far this year – so consider yourself normal! When the markets get messy, as they are currently, it’s generally because investors lose confidence in their ability to clearly see the future.
Loss of confidence in the markets has been created by a general distrust of both the durability of economic growth in China (plus, frankly, a low level prejudice that the Chinese government isn’t the most objective and trustworthy source of information about the Chinese economy!). This has been compounded by investor confusion on how to interpret dramatic reductions in oil prices – optimists see in it a discount at the pump and therefore a buoyed consumer; pessimists see in it slumping revenues from the energy sector and higher junk bond defaults from idealistic entrepreneurs washing out. Can they both be right?
Finally – and most meaningfully, there is a legitimate concern that the long run of record corporate profits might be nearing its apex.
Typically, what we expect to see from this is an overreaction (look: the market is already coming back to its senses…). The key is to remember that investing for any one market environment successfully requires a crystal ball. If you haven’t got one, spread your bets. The diversified client is a smart client – one who knows that winning is a balance of getting it right and not get getting it all wrong over a long period of time.
Remember that although these market changes feel exceptional, they are in fact fairly ordinary. ‘Corrections’ invariably are amplified, messy and indiscriminate. Therefore investment strategies that work across cycles rather than within cycles are to be preferred, if the investor would like balance and relative calm. This is why sophisticated forms of diversification are desirable: not to maximise return in any one cycle, but to maximise the opportunity for success across many cycles.
And that is exactly how we invest for our clients. We firmly believe that if you are taking the long term view with your portfolio, and you do hold a diversified range of assets, then you really do not need to be concerned or take any action at this time, despite all the media attention. However, if you have concerns and would like to speak to us about your portfolio then please just get in touch.