As investors, we are currently facing numerous challenges as the horror and human tragedy of the war in Ukraine continues, inflation soars and interest rates rise – not to mention the last throes of the pandemic which is taking hold once again in China.
Our first thoughts must be with everyone affected by the terrible events in Ukraine. It can feel somewhat inappropriate to consider investment themes when confronted by the scale of human suffering we are seeing and reading on our screens – an alien world to the freedoms and peace we are accustomed to here.
But part of my role is to steer clients through immense uncertainty and an ever changing landscape.
Somewhat surprisingly global equity markets are still around the level they were prior to the Russian invasion. Big events, such as wars, have historically had little impact on markets in the long run.
During these periods, if you were to look at the trajectory of your portfolio on a regular basis (daily, weekly or monthly) you would probably see some significant fluctuations. However, looking quarterly or preferably over annual periods there would be significantly more positive periods than negative ones.
Looking back over decades global equity markets have typically generated a positive return in three years out of every four. A way of looking at this is that the negative year earns you the other three! The investment markets don’t move in a straight line but fluctuate generally on an upward trend over the longer term.
The less you look at your investment portfolio the better.
However, the danger is that our emotions can take over and we can react to emotional prompts by what we see and hear in the media. This can be our enemy to generating long term returns.
The media is not a friend of the patient and disciplined investor. With the constant barrage of financial news telling us what we should buy and what we should sell there is a temptation, especially with current events as they are, to get blown off course and to chase short term returns.
No one can predict when the positive and negative periods will occur and which investments will perform the best and the worst. It’s akin to buying a lottery ticket.
Investing is a long term game, and contrary to the day trader, what happens in the next 30 days is likely to be unimportant to your plans. If you are in it for the long term the odds of a successful investment journey are stacked in your favour.
While I don’t know where markets will be in 6 months, I’m pretty confident where they will be in 10 years – higher than where they are now. Time is the enemy of market declines and generally we have plenty of it.
With all of this, it is important to remember that the big picture is crucial and to focus on the things that we can control. Life is centred around adapting to what lies ahead in the face of all the challenges and uncertainty that is thrown at us.
In respect of current events, the worse might not be over. However, 2020 and 2021 was a great case study in adapting to a challenging environment. The path ahead will not be a straight one (because it never is) and will require continued navigation to steer a course in the direction we want to go.