A basic desire for all of us is that of certainty. Certainty, in theory, helps us avoid pain and ideally find some comfort.
If we can control elements of our lives then it follows we will be happier, and therefore we create routines because they follow a pattern and provide that degree of certainty.
If anything disrupts that pattern then it is very hard to think clearly. The last three years have disrupted the financial pattern and have been a rollercoaster ride for investing.
The first quarter of 2020 saw markets tumble.
From the second quarter of 2020 up to the end of 2021 we saw a recovery in markets.
In the first quarter of 2022 markets tumbled.
Since the second quarter of 2022 markets have effectively remained flat.
Investing is a journey from A to B. If we invested £10,000 today and came back in 10 years time and found it was worth £50,000, would we be happy?
The answer is likely to be yes. However, if at some point the value was £65,000, how would that make us feel? Or equally if the value was £5,000?
The point being that to deliver a return on investments will require a degree of “risk”. That means that investments will go up and down.
This chart from ruleoneinvesting.com is a great illustration of how investors feel.
Ultimately, investing is all about our own financial plans. Nothing else matters.
This illustration from Behavior Gap sums this up well.
It is frightening how much data is generated daily. Some stats from visual capitalist:
- 500 million tweets are sent.
- 294 billion emails are sent.
- 65 billion messages are sent on WhatsApp.
- 5 billion searches are made.
By 2025, it is estimated that 463 exabytes of data will be created each day globally – that’s the equivalent of 212,765,957 DVDs per day!
So, coming back to 2022 and 2023. What do we know? A good starting point is the chart below:
There will be stock market crashes. And these periods are hard for investors. Sometimes the recovery in markets is not immediate but volatility does not equal a financial loss unless we choose to sell.
This chart further illustrates how the returns can vary over different periods.
So, how do we create certainty in an uncertain environment where there is so much data available? Many have not witnessed what we are seeing today because since 2008 investments have done well and interest rates and inflation have been relatively low. If interest rates end up around 3% and inflation around the same, these will still be low in comparison to history. But all of this is speculation as we do not have a crystal ball to foresee the future.
In these times the most important thing is our financial goals. What do we want, when do we want it and how do we plan to reach those goals? Everything evolves around that. It is basically “eat, sleep, repeat”. (Or for those who like Fatboy Slim “eat, sleep, rave, repeat”!!)
Yes, we may have to tweak the investments to reflect a more normalised environment but fundamentally everything starts with the goals, and then the plan. Everything after is about ensuring that this is reviewed, if necessary amended and that process repeats….” eat, sleep repeat”.
In summary, it may seem that what is happening in markets feels like that sense of certainty has been taken away. In reality, if we focus on what we know, which starts with our financial goals, then that is what we anchor our certainty on. The journey from A to B will not be smooth but as long as we remember “eat, sleep, repeat”, that should give us comfort in even the most challenging of times.
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