Ignore investment outlooks as they are rarely correct
Let’s look at the last couple of years, we have had the EU Referendum vote, Donald Trump elected President of the USA and Theresa May losing her majority.
Each time it was predicted that things would get very bad for the UK and US economy and that stock markets would suffer.
Well what has happened so far? Not much really, stock markets in the UK and US have continued to rise.
So if investment outlooks are so often wrong why are there always so many made each year? Well one, because it’s in our nature to want to know what’s coming and to prepare for it. We love to check the weather forecast so we can decide whether to dress for warm or cold. Two, it helps investment companies sell their services. If they make predictions either way this will encourage investors to buy and sell which is where these companies make their money.
Now I’m not saying this will always be the case. Stock markets will always rise and fall and rise but there is no way to tell when this will happen. It’s better to expect regular swings in value and build a portfolio that is prepared for this.
Ignore investment outlooks and get on with your life
When building a proper investment portfolio that will deal with the ups and downs of the stock market you need to:
- Know why you are investing so you can then determine how long you need to invest for and what return you need to make.
- Decide on how much risk you are willing to take.
- Diversify across different investment types e.g. Shares/investment funds, fixed interest/bonds, property and cash.
- Keep it low cost.
- Rebalance your portfolio every 6 months or so getting it back to its original allocation.
Once you have this strategy in place you can leave it alone to do its job. Don’t bother checking it or worrying about the news. Just get on and enjoy life. Let the portfolio do it’s thing.
Over the long term the investment markets of the world have always trended upwards. That’s not to say there haven’t been periods of large falls but overall the trend is up.
If you start checking on your portfolio on a regular basis then you will likely start to make changes and it’s investor behaviour that quite often lowers the overall return you achieve.
Carl Richards in his excellent book calls this ‘The Behaviour Gap’. The difference between the investment return and the investor return. This can sometimes be as much as 4%.
You should only really change your investment portfolio if your circumstances change. Perhaps your goals are now different or you need the money and can no longer invest. This is the time to re-evaluate.
If you would like an Independent professional assessment of your investment portfolio please give us a call. We would love to have a chat about what you are trying to achieve. All at our expense of course. You may also find our ‘Simply Investing’ guide useful. You can download it for free below.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.