April 30, 2020

Your Questions Answered

These unprecedented times have left us all with a lot of unanswered questions.

When can we get back to life as normal? Are my friends and family safe? Will we be ok? 

When it comes to our client’s investments, we have had some frequently asked questions. We want to share our responses in case any of these questions have been on your mind.  

Should I continue with my investments? 

Invariably, yes… unless your plans have changed!

Without exception, every client has a personalized lifetime financial plan. This is based on an understanding of your ideal financial independence. This comprehensive plan considers your assets, liabilities, incomes, expenditures as well as your most important financial aspirations, hopes, fears, and concerns.  We stress-test your plan to ensure they are achievable and realistic factoring in minimal returns and regular market corrections. Only then do we recommend an investment solution enabling you to achieve your financial independence and the life you want to live.

The investments we use are low cost, globally diversified, risk-rated portfolios. We have over 60 years of data on these portfolios, through multiple market cycles, just like the one we are experiencing now. The overwhelming wealth of academic data showing that the only thing to do in times like these, is to do nothing and wait it out.

Remember we have planned for this, so if your plan says it is ok, then it’s ok. Markets will recover and you will want to be around when they do. The only time we would consider making some changes is if something fundamental has changed with regards to your financial plan.  If you feel something has changed please get in touch with your adviser who can arrange an ad hoc review with you to adjust your plan.

Check out our recent blog post The basics of financial planning for more on this.

As stock markets are volatile, should I be taking more or less risk?

Market volatility is completely normal and part of the deal for investors in return for an inflation-beating return.

The Psychology of Volatility is important to understand and every investor has a different relationship with risk, which has been factored into your investment decision to date.

Volatility isn’t the only risk your need to consider.  Have you thought about the long-term effect of inflation and your spending power in retirement?  What about an entire capital loss due to a lack of diversification or sequence risk in the early years of drawing an income from your investments? Don’t worry, we have considered all of these factors of risk and more when recommending your bespoke portfolio.

The best course of action is to stick with the level of risk you started with. As it was designed as a long-term solution through market cycles. You will come out the other side as you intended when we started your investment journey.

We do not recommend making changes to your risk profile as a reaction to a recent market change.

I have some spare cash; as the market has dropped, should I invest it? 

Only invest spare cash if it is surplus to requirements.  We recommend a minimum of 6-12 months’ worth of lifestyle costs in cash reserves for those who are accumulating wealth.  For anyone in retirement we expect this to be more like 2-3 years’ worth of reserves in cash.  This is all bespoke to you. It is relevant to your life stage, need for cash and your overall capacity to take risks.  If you fall outside these parameters and have spare cash that isn’t required or cash you recently accumulated or inherited, please get in touch to discuss how we can build this into your overall investment plan.

How long do you think it will be before the markets are back to where they were before the crash?

According to research by Vanguard (one of the largest investment managers in the world), the average Bear Market (down market), lasts approximately 1.3 years. That’s not to suggest that in approximately 13 months we will be back to the market highs of February 2020. However we have already seen the sharp decline dissipate and a slight recovery occur over the past few weeks across global markets.  In most market cycles the recovery tends to mirror the collapse. Meaning short sharp declines in markets tend to precede relatively short sharp inclines to recovery. In contrast a slow and low decline over a period of years, maybe followed by a slow rise and recovery.

If this remains true of this market correction, with history as our guide, a recovery could happen sooner rather than later.

The important thing to understand is that markets by their very nature are designed to go trend upwards over time. They then correct every 5-7 years when they start to overheat.  Markets are often a reflection of human nature. Particularly at the extremes when fear and greed can take hold of even the most seasoned investor. It can lead to poor and sometimes catastrophic financial decision making.

The trick is to stay focused on the long-term financial plan. Ignore the short-term market movements, as they are a distraction to your long-term wealth!

Does the Covid 19 crash offer unique investment opportunities?

Any Bear Market offers the patience, disciplined, long term investors the opportunity to buy into markets at a cheaper price.  Ultimately leading to greater long-term returns. The bigger question then becomes, is it right for you to do that based on your financial master plan? It is tempting to throw some money at the markets right now, and if you have the spare cash that you don’t need access to in the next 5-10 years then now would be a good time to do so.

However this comes with some caution. If this means you are wiping out your cash reserve in retirement or leaving yourself in a position where you need to see a return over a short period of time, this is speculating, not investing. It is ultimately not in line with your ambition to become truly financially independent. Like most financial planning decisions, it’ entirely personal and is a commitment that should not be taken lightly.

Speak to your adviser first if you are considering investing, it might not be in your best interest!

Is there any precedent in relation to the present circumstances?

What makes this particular market correction feel different, is the global lockdown due to the nature of the current pandemic we are facing. There is so much fear and uncertainty due to the very real impact this disease can have on our family and friends. Naturally, global markets have been affected by this crisis. We have seen some sharp declines in values across all portfolios in which we invest.  You would be forgiven for thinking “this time it’s different”. Wanting to make changes to your investments in reaction to the situation is understandable.

We can’t even honestly say “we have been here before” because we haven’t. At least in terms of the socio-economic impact, we are currently facing and the day to day challenges people are currently dealing with.

Even considering all the daily challenges we face, we remain confident. Confident in the investment decisions all clients have made. The portfolios you are invested is the best place for your money right now.  Moreover, we are confident that given time, markets will make a full recovery and the fear will dissipate. Soon to be replaced by a buoyancy and confidence. Typically associated with a rising bull market, experienced following the most recent major market correction in 2008, every correction that came before.

It’s important to remember, although this feels different and naturally, you are concerned about the financial impact. From a market perspective we have been in this situation countless times before. Every time markets have recovered and advanced far and away higher than any previous peak experienced before a correction. We just have to be patient if you want to participate in the recovery.

The best thing you can be doing right now is nothing at all. Sit tight, trust the process and keep the discipline.

We are here to support you every step of the way. Do not hesitate to reach out to us if you feel you need help. We are here for you even if you just want to chat things through and seek some reassurance.

Are you still in the office?

We are still operating business as usual, with Howard and Alex manning the office. As Alex is still at home with Howard, then the contagion issue is infection neutral for them. We are not doing any face to face meetings in the office during this time. However, we are keeping in contact with clients via Zoom or telephone calls. Our phone lines are available between 9 am – 5 pm Monday to Thursday, and 9 am – 4 pm on Fridays.

How are you doing?

The team is all doing well and adjusting to the new way of working. We are keeping in regular contact. This allowing us to catch up, share new ideas, and continue to grow as a business.

Are most of the staff working from home?

Aside from Howard and Alex, the rest of the team are working from home. The team is committed to ensuring we provide a high-level service to our clients.