Taking Stock – What Will Help

Quarter ends means valuation time. Getting a valuation of your investments four times a year has always struck me as odd, you wouldn’t want the local estate agent coming around to value your house every three months – but those are the rules that those of us in the finance industry abide by. By and large, it has been a rotten year so far for most asset classes, and therefore the majority of valuations might not make pleasant reading.

This may be recency bias in action, but I feel like this year has served up the toughest investing environment that I have encountered. Bonds have of course been terrible. Stocks have been propped up to an extent by the weakness of Sterling. Hundreds of years of market history tells us that things will improve and recover of course, but that does not necessarily help stop the feeling in the pit of your stomach which can arrive at times like this.

There is one thing to say here, at the outset.

Corrections and resets are a necessary part of being an investor. Stocks do not just go straight up.

“Should we be doing something?” is a question I often get asked during periods like this. “Doing something” can feel comfortable, like we are re-gaining control of the situation – but the simple reality is that as investors, you and I operated in a world of uncontrollable. The market does not care about when you initially invested, when you plan to retire, or how much conviction you have in that stock you just bought. If we accept that a large proportion of short-term outcomes are unknown and unknowable, then all we can do is focus on what we can control.

In no particular order, this is what I have found useful over the years at times like these:

Read less

Journalists are not bad people, I have met quite a few. But it’s important to remember how everyone writes something that you read is incentivised. For a media business, clicks = revenue and we are all seduced by pessimism. Folks who save diligently and incrementally amass fortunes for themselves through a lifetime of patience never get the headlines. The more bombastic or outlandish the claim, the more likely it is to grab your attention.

The less you interact, the less likely you are to do something, the less likely you are to make a mistake.

On that note, do less too

This is not the time to make lots of changes to your investment strategy. The time for panicking has passed I’m afraid. If you find yourself constantly worrying about your portfolio value at the moment, make a note of this and then conduct a root and branch re-assessment of your asset allocation when the world settles down. An investment adviser can help you.

Priritise personal finance

If you are compelled to do something, start with the bread and butter of your financial plan. Can you afford to save more each month, or invest spare cash? For those, who are not savers, lower prices are a godsent. You are a forced buyer of financial assets for the next ten/twenty/thirty years (delete as appropriate). May as well try to capitalise when both major asset classes are falling.

Have you subscribed to your ISA allowance for this tax year? Can you afford to make further pension contributions? Should you be harvesting losses within your portfolio to offset against future years’ capital gains? Tax efficiency plays a huge role in your long-term outcomes. A financial adviser can help you her.

Accept that you will probably be wrong

If you decide to add to your portfolio at the moment, well done for taking positive action – just recognise that there is every chance that you will be punched in the face almost immediately by further falls. This is just what the market does at times like this. The chances of you “catching the bottom” of the market are infinitely small so accept that, in all likelihood, this will not happen. But by choosing to add at a discount, regardless, your future self will thank you eventually.

Look after yourself

Some evenings are more successful than others, but when I get home from work, I make a deliberate effort not to check the market. Whatever is happening is out of my control, I can’t do anything about it, and it takes up precious time that I could be using for something I enjoy.

This suggestion may seem glib but, and I really cannot emphasis this enough, the primary edge we all have as investors is behavioral. At times like this how you behave as an investor has a disproportionately high impact on your eventual outcome, and anything that helps your frame of mind can only be a good thing.