Let's start with the good news: investmentreturns over the last couple of years have been fantastic. Take a bow, markets.
But investing has never been a straight line. Cast your mind back to 2022 and into 2023, when interest rates were rising faster than my energy bills. That was a genuinely tough time, and most portfolios went backwards for a year or so.
So where am I going with this? I was chatting with a client recently about what markets might do next. I'll be the first to admit they're riding high right now. There are real worries out there: inflation creeping back, interest rates staying higher for longer, and the eye-watering level of government debt around the world.
None of that means markets can't keep climbing. Equally, they could have taken a tumble by the time you finish your cup of tea. The honest answer is that nobody knows, and anyone who tells you otherwise is probably selling something. Markets run on emotion and mood as much as on numbers, so it's far from an exact science. What history does tell us is that, over the long term, markets have recovered from every fall and gone on to reach new highs.
That's why the single most important thing is to stay invested and stick to your plan. Don't rush for the exit when the next dip arrives. And equally, don't take out a big lump sum now just because things are looking rosy.
If you've been invested with me for a while, you'll have seen some healthy growth recently. It's tempting to think of that as "bonus money" for a new car or a spontaneous trip somewhere sunny. I'd gently suggest thinking of it as part of the plan instead. When we built your plan, we expected both good years and bad ones. You've enjoyed the good times, so when a fall comes, it's something we've already prepared for, not a reason to panic.
If you're younger and still working
If you're still working, it's even simpler. Keep your regular contributions going, because they're what really matter. When markets fall, your monthly payments are effectively buying at sale prices, which can work in your favour over time. Nobody complains about a sale in the shops, after all.
You've probably heard the old puzzle: start with 1p and double it every day for 30 days, and you'll end up with more than£10 million. Here's the bit people often miss. On day 20, you'd have a rather underwhelming £10,485.76. Nice, but hardly yacht money. Almost all of the fortune arrives in the final ten days.
Investing over 10, 20 or 30 years works in a similar way. Real investments don't double every day (I wish they did), but compounding means the biggest growth in pounds and pence usually comes in the later years. That's why staying the course matters so much. Give up halfway and you miss the best part, a bit like leaving the cinema before the big finale.
The ups and downs are simply part of the journey and Volatility is the price of admission.
Recent returns have been very welcome, but we shouldn't get carried away. By the same token, the next market fall, whenever it comes, shouldn't keep you up at night. What matters is keeping your eyes on the long-term plan.
