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What to do when markets are going up!

As you’re all probably aware, most global markets are at all-time highs.  Events that would normally pull markets clean off the tracks – Brexit, Trump, the UK’s disastrous election result, the continuing Euro-troubles – are simply being brushed off as minor irritations.

Investors understandably worry and panic when markets are falling.  And that’s when we bring out the big guns.  We have an arsenal of articles and videos designed to re-assure investors when times get tough.  They remind investors that although markets do go up and down, in the long term, stockmarket investments have always beaten cash and inflation.

So I thought now is a good time – when everything is going right – to tell investors what to do now.   And the answer is the same.  A well-diversified, regularly rebalanced multi asset investment – and time – are your best allies in your quest for financial freedom.  Asset allocation is the key determinant of investment returns.  Time in, not timing, is the key to successful investment.  Rebalancing captures growth and redistributes it to the rest of the portfolio.

So when we see market corrections – and we will see market corrections (who knows when – maybe tomorrow maybe in two years time) I will still be rolling out the same message.  Keep Calm, Keep Diversfied, Keep Invested, Keep Rebalancing.

2 Comments

  1. Richard Jones on August 26, 2017 at 9:41 am

    There is some sage advice here… But what does diversification mean? Rebalancing suggests staying invested on the original premise but is this sensible this late in the business cycle whereby equity markets worldwide are due to correct, suffer a bear market, etc? Given the reversal of QE, bonds will likely head in the same direction… down… it is well recognised that the negative correlation of bonds to equities has not held true for some considerable time… so old rules of thumb do not protect.. so how to protect at least against the worst ravages of a big drawdown? How to balance the portfolio so as to capture the greatest risk adjusted return given that huge drawdowns have historically annihilated equity based portfolios such that they have often taken tens of years to recover… This is very significant given that for compounding to work within ones remaining useable lifespan one has to dodge huge drawdowns.. So how to derisk, how to add perhaps some negatively correlated components to a portfolio, perhaps at its most simplistic what cash percentage might be healthy at this time? Whilst “time in not timing” is a well used nostrum it is rather superficial… the past is not necessarily a guide to the future…

    • Bernadette Fletcher on August 30, 2017 at 11:27 am

      Thank you for your comments. The problem we have is two-fold. One – we don’t know where we are in the business cycle. Many markets are at an all time high, it’s true. But that doesn’t mean to say they can’t go higher. The second is that if you are not invested, where else can you go? There are no safe havens any more. Gold is for fools. Cash is pointless and will actually lose you money in real terms. (I have never held cash in any of my portfolios and never would) If you did go into cash for safety, how would you know when to come out and go back in again? Fixed interest is now fixed at a loss, as you say. We are firm believers that the only safe havens are multi asset portfolios (diversification) and a long term view. Our multi asset portfolios invest in a range of funds which are not correlated to equity investments.

      I’m not sure what you are referring to when you say that ‘equity based portfolios have taken tens of years to recover.’ I have never seen that in all my years of investment management. You can see from this graph that even after the worst global downturn of the century, that multi asset portfolios had recovered the losses after only a couple of years.

      Rebalancing is simply a mechanism to capture growth on the way up and redistribute profits across all the original asset classes. We have had considerable success with our managed portfolios since their inception, and with multi asset portfolios for decades before that.

      So in summary, far from believing that ‘time in not timing’ is superficial, we feel it is crucial to successful investment, as is a regularly rebalanced multi asset portfolio.

      I would be more than happy to continue this dialogue if you feel it would be useful.

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