There were a number of topics in discussion in the world of finance at the beginning of 2022;
- Would inflation reach its peak in the spring?
- Are interest rate hikes being made too quickly?
- If fuel price increases are just the result of costs being passed on to consumers, why are the profits up 14 fold for the big oil companies?
Another topic which was being tentatively discussed was the potential geo-political and market impact that any conflict between Russia and Ukraine may have.
This is now an event we are, rightly, seeing heavily covered in the media. With Putin trying to make sure he leaves some sort of a legacy, by leading Russia to invade the Ukraine, the stock markets have become much more volatile. On Thursday, we saw stock markets around the world fall, with a swift recovery the following day.
Sanctions are now being imposed, with the potential of more to come. Innocent people are losing their lives. Protesters are being detained in Moscow. All we can do is simply look on and pray that Putin comes to his senses and his “special military operation” (as called by Russian news) comes to an end.
In the meantime, it is now a case of what can we do as individuals. One thing we can all do is to make sure that we do not make our own financial situation worse.
If we look at historical events of recent years, can you remember any of these?
- The Cuban Missile Crisis
- 1967 was the Arab Israeli Six-Day War
- 1968 the Russian invasion of Czechoslovakia
- 1973 the Yom Kippur war and continuing conflict in Vietnam
- The 1970’s also saw the oil crisis, the “troubles” in Northern Ireland, rampant inflation, and perpetual industrial disputes
- 1979 was the Russian invasion of Afghanistan
- The 1980s saw NATO falling out with Russia over Cruise missiles in Europe and also saw the Falklands War
I’m sure there’s plenty more that we could all add to this list. Our point is that in all of these events, the markets have fallen, but after a period of time have recovered. Over time, the markets always have an upwards trend.
We now live in a global world of instant media. You may have seen articles saying;
- “Everyone is selling their shares and buying Bitcoin (and other crypto currencies)”
If this were the case, if “everyone” sold their shares then there would be no one to buy them, as you are only able to sell shares if someone else is willing to buy them. Cryptocurrencies only ever increase in value if someone is willing to purchase the currency for a higher price that the previous person paid for it. It will not increase in value because of the profits made, like you would expect from a normal ’share-holding’ or for any other reason.
- “Buy Gold”
But should you do it? In one simple word, no. In every crisis it’s said that gold is a safe haven and that any money backed by government is not. Many say, “gold is a store of value” and point to the gold price as evidence that they are right. But are they? Only in the sense that even a broken clock is right twice each day. Take a look at the price of gold adjusted for inflation. Those who bought gold in the 1980 price spike have never recovered the cost, in real terms, let alone made any profit.
So, what should we do?
One of two things;
Do nothing British Airways pilots are trained, repeatedly, that immediately doing nothing in an emergency, when a plane is in trouble, is the best course of action, whereas, the initial reaction of most people would be “we must do something”. British Airways have proved that pilots who take their time and hold their nerve, have a much higher chance of saving their plane and passengers.
Investing is very similar, in that when the markets fall because of a major world event, doing nothing is invariably the best course of action! If nothing else, the initial market drops post the start of the Covid 19 Pandemic in 2020, and subsequent market recovery proved just this.
We continue to use our robust strategy for our fund selection process and speak regularly to the fund managers that we trust to run our client’s money. We are great believers in not making knee jerk, short term change, just for the sake of it, as we have to take a longer term view, an approach which has benefitted all our clients.
Continue to invest Whenever there is volatility in the market, many of our more experienced investors see this as an opportunity to invest. Continuing to invest to take advantage of the lower share prices and benefitting from what is known as “pound cost averaging”.
As always, selling at, or near the bottom of the market just crystallises any loss and compounds the problem of when to re-invest.
Once again, we are seeing a turbulent time for investors. However, rest assured that our investment committee are continuing to monitor our model portfolios to ensure that the funds remain the right ones for you.