Investing in an uncertain world
It really is no understatement to say, it certainly feels like the world is in a very uncertain place.
It is so heartbreaking to watch current events unfold in Ukraine – it is not a happy situation and let’s all hope and pray it is resolved soon, as the potential cost in human suffering is far worse than any financial consequences.
And, that’s not to make light of the fact that financially, with markets falling around the world, it can feel very uncomfortable as an investor.
However, as ever, it’s worth remembering all the news we see and worry about, is already reflected in market prices.
For sure, if there is new news, this will have an influence on those prices, yet by its very definition, this is a random process that is hard to benefit from, unless we could predict the future.
It is always easy to feel that the present is more uncertain than the past. However, over the mid-to-longer-term, markets absorb the consequences of these events and power forwards as capitalism drives the relentless pursuit of profit opportunities.
It’s worth remembering, being shaken out of markets, based on today’s news is about the worst mistake you or me can make as long-term investors.
So, what can be done? The short answer is ‘not much’.
In terms of direct portfolio exposure it is worth noting that Russia represents around 0.35% of global equity markets and that is before this is diluted by your bond holdings.
To put this in perspective, the global market weight of Apple is over 4%! In fact, Apple’s cash reserves alone are broadly similar to the value of Russia’s entire market capitalisation.
Because no-one has any real idea as to the wider impact of the Russian invasion, and to what extent markets will fall, we need to remember the following:
• Equity markets do fall in value and sometimes materially, as part of their journey to delivering positive longer returns after inflation;
• It’s unlikely our personal and financial circumstances have changed to such an extent that we need money from the equity holdings in our portfolios;
• Feeling uncertain about markets is not a valid reason to get out of markets;
• As a client of Wells Gibson, your portfolio’s high-quality bonds provide stability during equity market falls; they provide liquidity to meet your liabilities without having to sell equities when they are lower in value; and last and by no means least, your high-quality bonds can be used to rebalance your portfolio, to get your portfolio back up to the right level of risk.
The truth is, in order to benefit from real growth in wealth over a reasonable period of time, occasionally we have to sit tight and fasten our seat belts during times of market turbulence.
Be assured that Wells Gibson’s investment committee is monitoring the current situation, and if any changes need to be made we will be in touch.
One piece of advice I would give, try not to look at the news too much!
Please do, of course, get in touch, if you have any questions about this or any other financial planning matter.