Modern life provides us with so much news, information and opinion, which typically focuses on the here and now, so much so, that it is easy to be overwhelmed with the feeling of doom and gloom. The list of things to concern us is long and worrisome; the uncertainty of a vaccine for Covid-19; the prospect of a long and drawn out recession; US/China tensions resurfacing; and the prospect of no UK/EU trade agreement, to name a few.
The natural extension of this is to worry about what the impact of all this uncertainty will have on your portfolio and in turn, on your future wealth and desired lifestyle. The first mistake is to believe that the world is falling apart around our ears. It most certainly is not. The second mistake is to think that your globally diversified portfolio needs to be repositioned to mitigate these events. There are 5 key reasons why tinkering with your portfolio is unlikely to be a sensible course of action.
Today’s ‘unprecedented’ turmoil is different – So WAS 9/11 and BREXIT
Today’s worries dominate our thinking; but can you remember what you were worrying about a year ago, or two years ago? Probably not. It has always been like this, yet the overwhelming take-away is to acknowledge capital markets thrive because they succeed over the long-term, despite world events.
Bad news sells – so don’t ignore the underreported good news
We are all aware that bad news sells. For example, the Bank of England predicts the UK economy will sink by as much as 25% in the three months to June. Yet, the S&P 500 Index of largest companies in the US, closed higher on the 7th May, than it was on 31st May 2019. It is not all bad news.
The futility of futurology
Futurology is the financial markets’ version of astrology. There is a huge industry out there from the International Monetary Fund and the UK’s Office for Budget Responsibility to investment banks, academics and BBC reporters all peddling their own view of the future. These futurologists have one thing in common; they are nearly always wrong in their predictions and are rarely held to account for their poor forecasts. Take forecasts with a pinch of salt.
The news is already in market prices
It is normal to be worried about the potential impact of what is going on in the world and how this will affect markets and, therefore, your portfolio. The reality is that you are not alone; in fact, all active investors have some view on how Covid-19, a global recession, US/China and UK/EU trade talks – to name a few – will impact bond and equity prices. These global, diversified views are already reflected in the equilibrium price of securities, agreed freely between buyers and sellers.
Your portfolio is already structured to manage uncertainty
Today’s concerns are endlessly recycled through the 24/7 media soundbite process, alarming some who are invested in the markets. Well-structured investment portfolios seek to ensure that any market conditions can be weathered in the future, whatever drives these storms. Your highly diversified portfolio, balancing global equity assets with high-quality shorter-dated bonds, is well positioned to do so. Try not to worry.
As always please keep safe and if you have any questions please get in contact.