September 16, 2022

What do I need to know?

If you pay attention to the news, it sounds like there’s a lot to be worried about

Last week we received the very sad news of the passing of Queen Elizabeth II, my thoughts are with the Royal Family at this sad time. Losing a member of the family is a horrible experience and must be doubly difficult with the added intrusion from the worlds media.

Personally I have been reflecting on this sad news and looking back over her reign, and one thing that stands out to me is that, she always displayed a ‘Keep Calm and Carry On’ mantra, no matter what was happening in the world or who she was meeting. She always kept it altogether and was incredibly consistent. At times it must have been very difficult to do this, whether this was shaking hands with Martin McGuinness or perhaps taking the Crown Prince of Saudi Arabia for a drive (women were not allowed to drive in Saudi Arabia at that time). Then it struck me how little we know about the Queen, maybe she enjoyed the challenges of meeting people she did not share common values with or maybe it was her duty taking over. Either way she will be greatly missed.

By coincidence my monthly blog is about news, If you pay attention to the news, it sounds like there’s a lot to be worried about – the war in the Ukraine, the recession, cost of living and so on – you might feel like you’re being bombarded with information that you ‘need to know’ that could affect your finances.

This cascade of ‘noise’ might leave you feeling over whelmed; worrying about your future and your investments, whether you’ve made the right decisions, and if your plans are even capable of coping with all this external action.

But a lot of what you’re hearing, or seeing reported, is just noise – yes, there is some useful information wrapped in there, but when you boil it all down, only a fraction of that is stuff that might actually be useful.

Now, you might be thinking, “Well if it’s not important, why is it reported? The first thing to remember about the news, reports are often designed to attract attention, draw interest, views, clicks, page turns, etc. Content can often be sensationalised, deliberately (or subtly) unclear, exaggerated, or in some instances (often prefaced with the word ‘allegedly’)made up entirely.

The noise surrounding the stock markets is especially prone to sensationalism, and ‘dire’ predictions from people who proclaim to be ‘experts’, but who may only look at the short-term, where they can make the most explosive headlines. After all a broken clock is right twice a day.

How Do I Know What to Pay Attention To?

So, cutting down the noise, where should we start?

First and perhaps most difficult, try to stop paying close attention to the daily financial news and trying to relate it to your own finances. You may hear things like “the FTSE 100 closed down 50 points” or “inflation has hit 8.8% (CPI July 2022)”. Whilst these can affect your investments it’s only a moment of time and nothing lasts forever. Investments are for the long term and should not be measured in days, weeks or months. Crucially nobody can control the uncontrollable’s for example how much the Bank of England will increase the base rate by, or trying to guess Putin’s next move.

When your financial plans are formulated, we take into consideration a whole host of different factors including a clients capacity for loss and investment time frame to ensure when there is a period of negative returns a client can ride it out. I wish I had a crystal ball knowing where the stock market will be at a given point, in fact I have been on numerous webinars this year, with providers sharing their own “predictions” where the economy, stock market or inflation will be at a certain points in the future. The trouble with forecasts is that they are always wrong.

Our investment strategy ensure clients are invested in the best range of funds specific to their own attitude to risk but also our underlying investment philosophy. Diversification helps us to align a clients investments to their risk profile but also to help spread the risk. Different markets react differently to specific events. For example, an event which effects the market in the US might effect equities but not necessarily UK government bonds. Accepting volatility is par for the course, longer term we know our clients will enjoy the benefit of investment returns and should not worry about day to day impact of these bad news stories.

No doubt we will continue to hear bad news in the months ahead but it is worth highlighting the economy and stock market are different. Today’s stock market has already priced in inflation, further interest rate rises and the probability of a recession. Whereas any data we receive about the economy, GDP figures or inflation is looking back in the past. In other words the stock market is ahead of the economy.

It’s probably fair to say that if you only pay attention to bad news, you’re going to make bad knee jerk decisions. Financial planning is a bit like the fable of the tortoise and the hare, you might think that a short-term change and race to the goal is going to net you wider gains and better investment opportunities, but sooner rather than later, those short-term fads and trends are going to run out of steam, and those that raced ahead are going to be left behind as those ‘plodding along’ with their long-term strategies catch up then surpass them.

A great way to work out what you need to know, is to ask! If you’re not sure whether your investments and plans are being affected by a particular trend or occurrence – or you just want a bit of reassurance that you’re correctly understanding a situation, it’s best to give us a call!

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