Investment Planning In Uncertain Times

Uncertainty is starting to feel like a defining feature of this century. We’re in uncertain times: our social, political, and economic landscape is constantly shifting. We’ve had the dot-com crash and 911, along with the global financial crisis of 2008 and COVID. They all took their toll. Wars involving global players are currently playing a huge role in shaping conditions, both now and for the future. We don’t know how they will play out, or what else might be around the corner.

How do you plan when you don’t know what’s going to happen?

Where do these uncertain times leave us when we think about investment planning? How can we plan when we don’t know what we’re planning for? How can we invest – or be secure in what we’re already invested in - when there’s less visibility?

Firstly, it’s important to remember that we are all in the same boat. Some of us have been here before. If you haven’t, the future can feel even more unsteady and worrying – but, like before, we will get through it. No one has a crystal ball and there’s no clearcut strategy for investment planning with no risk, only reward. What there is, however, is what we’ve learned through all the ups and downs of the markets through multiple cycles of uncertainty and recovery.

Why do the markets feel more uncertain ‘this time’? 

In any market there is always risk. In stable economic, social, and political conditions, as the small print says, ‘investments can go up as well as down’. We know this, and we plan for this:

• We plan our investment strategy around how risk averse we are
• We diversify
• We care more about long-term growth than short-term dips
• We don’t panic when the market goes down, because we know it’s inevitable
• We dig in and wait for the recovery

When events are happening across the world we have little or no control over, that impact economic, social, and/or economic conditions more than normal, it feels dangerous. It feels like everything is different and we’re entering a new era where the rules have changed. It’s tempting to think our investment planning should also change to take this all into account.

Markets have always been unpredictable - but they have also always recovered

If you think back, the sentiment was the same the last time a major, unpredicted event happened that brought with it potentially serious consequences for investors. If it’s your first time experiencing this sort of volatility in the market, however, it’s good to bear in mind that it’s also unlikely to be your last.

Knowing this intellectually doesn’t make it feel any less difficult or help you feel like it’s more likely we’ll get over this too and recover as we have before. Instead we judge the risk in front of us based on how prominent it is in the news and our minds. We don’t always consider the real probability of certain outcomes and make decisions based on those. Instead we focus on the worst-case scenarios that the media and our brains like to reinforce.

Should you act when markets fall?

When the world is changing, it can be hard to not react in some way. The urge to do something when markets fall is a human response. It can make you feel like you have some power over events. It can give you the impression that you’re ‘winning’ by being proactive, not passive.

In reality, though, the rational choice would be to do nothing. Long-term investors are in it for the long haul. They know there will be dips along the way. They know markets go up as well as down. Long-term investors don’t take their money out as soon as the market goes up. If they did, they would likely lose out on future gains. It’s the same when markets go down.

Good investment planning is based on what you know, not what you don’t know

We cannot reliably predict what will happen in the future. We don’t know how these or the next crises around the corner will unfold. We don’t know how the markets will respond. What we do know, however is that short-term volatility rarely derails long-term investment outcomes.

The rules for investment planning in periods of uncertainty are therefore the same as they are during periods of relative calm and stability.

What good investment planning looks like during periods of uncertainty

Your current investment plan will have been put together based on what you want to achieve from your money in the long term. Unless this has changed independently of any changes in the global landscape, it is unlikely you will want to alter it at this point. Continuing to do what you’re already doing should stand you in good stead.

Diversify

Your portfolio should be diverse, and in ‘normal’ times, this protects you against underperformance. In uncertain times, this diversification will help protect you against this uncertainty too. We don’t know what is going to happen: if your holdings are across diverse instruments, where you lose in some, you could gain in others.

Avoid being too focused on one scenario

You might think a recession is coming, but even if you’re right, your portfolio shouldn’t be designed purely with this in mind. It’s just one scenario, so don’t forget there are always other issues at play.

Ignore anyone who has a system or ‘insight’ to help you to beat the markets

There’s no such thing. There are well-informed, good decisions based on the best information we have at the time, and there are scammers who will take advantage of anyone they can by playing on their fears.

Focus on the usual fundamentals that should stand the test of time

Looking at things like valuations, yields, and compounding cash flows will give you solid foundations as a starting point. A financial adviser will take you through a range of scenarios to help you understand how the choices  you make today are likely to serve your long-term financial wellbeing.

Long-term investment planning

Uncertainty is never fun. It’s stressful. But the one thing you can take from it is that a good financial plan should help you withstand market volatility as best you can. It should be designed to help you reach your desired destination – and uncertain times should be expected and already in the plan.

If all this uncertainty has left you stressed and questioning your current investment strategy and wondering if you should be doing something different, we’re here to help. We’ll work with you to discover what you want to achieve and how best you can achieve it despite the circumstances. Why not get in touch and let us help you navigate the storms?

Although the content of the article was correct at the time of writing, the accuracy of the information should not be relied upon, as it may have been subject to subsequent tax, legislative or event changes.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.