Monthly Archives: October 2018

A Case In Point

I wrote last week about the market volatility we had seen and the importance of keeping a level head during times like these.

In that post, written in the midst of large market falls, I encouraged investors to keep calm and carry on. I also mentioned the potentially damaging effects of missing just the best 10 days of market growth within a 15 year period.

Although last week ended at a low ebb for the markets, things quickly started to recover on Monday and have continued to do so this week.

For those people who think that they can time the market, they would have needed to correctly predict on Tuesday the circa 7% falls that would transpire on Wednesday and Thursday. I have seen no evidence anywhere online of anyone making those kinds of predictions.

They would have also had to be brave enough to go back in late on Friday, just in time to catch the gains that have been made this week.

Especially when looking at the US market, I suspect history will confirm that some of the days this week will feature in the ‘top 10’ days list in years to come. If you are out of the market even for just these few days, you risk cutting your total return in half.

Unless you have a crystal ball, I would contend that no one would have made the decisions required to prosper in the markets over the past 10 days.

This leave us with the only reliable option – to remaining invested throughout. This means we capture all of those best 10 days. Yes, we have to accept some temporary volatility along the way. But that is all that it is – temporary volatility.

Please don’t let something as normal and expected as a bit of market volatility throw your financial plans off course.

Keep Calm & Carry On

Keep Calm & Carry On. Sage advice in times of market stress.

Countless research has shown that missing just the best few days of returns in the market is enough to significantly dent your total investment return.

Research by Fidelity has shown that if you had your money invested in the FTSE All-Share from the end of June 2003 to the end of June 2018 (15 years or approximately 5500 days), you would have earned a very nice 8.9% annualised return. Not too bad by any standards.

If you miss just the best 10 days of performance (out of those 5500) then your total return falls to just 4.6% per annum.

Miss the best 20 days and it falls further still to only 2% per annum.

If you miss the best 40 days of returns (again to stress, out of a total of 5500) then you actually get a negative return of -2% per annum.

The same research has been replicated across many different markets all over the world and the results are very similar.

This shows the importance of remaining invested, even when markets get turbulent.

In this world where investment decisions are made by computers in milliseconds and the distance from the stock exchange determines which trading house wins, anyone who thinks that they can time the markets is either lying, deluded or both.

Research has also shown that so called ‘investment experts’ and analysts have a pretty much exactly 50% chance of success when trying to predict when markets will go up or down. You might as well flip a coin to predict the direction of tomorrows markets, it has as much chance of being right as anyone else out there.

Im pretty sure on Monday of this week no one predicted the falls we have seen on Wednesday and Thursday. If they did I am yet to hear about it.

The point is that markets move very quickly.

If you attempt to time the market, the chance of missing those best 10 days is very high indeed. Markets can and do recover quickly and the biggest gains (i.e. those best 10 or 20 days), tend to follow significant market falls.

We only have to look back as far as February to see a similar phenomenon in action. In the early days of the month, the S&P 500 dropped around 8-9% over just a couple of days. Of course this was widely reported in the media with the usual collection of colourful language such as ‘turmoil’, ‘chaos’, ‘panic’ and, my personal favourite, ‘bloodbath’.

What received almost zero mainstream media coverage was the subsequent recovery. Only weeks later the S&P 500 has recovered the 8-9% it lost and it then went on to break new record highs only a few weeks after that.

Calm seems to have returned this morning on the markets. Could this be the start of the next recovery, or just the eye of the storm?

The truth is that no-one knows, but the time-tested investing adage of ‘time in the market, not timing the markets’ is as valid today as it ever has been.

Keep Calm and Carry On. It’s the only way to invest.

 

 

The Perfect Week In Retirement

When we work with clients on their retirement planning, we often ask them to complete an exercise we call the ‘perfect week’.

In this exercise, clients are asked to map out what the perfect week looks like for them in retirement. We create a grid with the days of the week along the top and we divide each day into an AM, PM and evening slot, making a total of 21 ‘slots’ to fill for the week.

Most clients find this exercise fairly simple. Most of us have a pretty good idea about what we would like to do for a week in the ideal world.

Most people will build in some form of travel (perhaps spending the whole of their perfect week on holiday). There will often be meals out with family and friends and ‘experience’ activities like going to the theatre or sailing.

This exercise is incredibly valuable, but it is not the full story.

Retirement is about so much more than just a single week.

As such, we then ask clients to think about repeating this exercise 52 times for each week in the year (to be clear, this is a theoretical exercise – we don’t ask people to actually fill in 52 perfect week sheets).

At this point, people are often a little stuck. It is really easy to visualise a single week or even two or three weeks, but planning out a whole year is a bit harder.

Most people don’t want to (or couldn’t afford to) be on holiday all of the time, so some more thought is required to map out a year.

Once people have given some thought to the 1-year picture, we then ask them to repeat this exercise 30 or 40 more times. This is because there is now a very real possibility that retirement could last 30, 40 or dare I say 50 years for some people.

Thats a total of between 1560 (30 years) and 2600 (50 years) weeks. That’s a long time to plan for.

But plan for it we must. Research has shown that those people who spend significant time planning their retirement are quantifiably happier when they actually do retire than people who have done very little or no planning.

The irony here is that the average American (and one assumes the average person in the UK also) spends longer planning a 2 week holiday than they do a 30 year retirement!

If we are to live a long, and more importantly happy, retirement, we really must give retirement planning the time it deserves.