How to switch off the market jitters

There’s one phrase we’ve heard a lot in our client review meetings recently: “Actually, it’s not as bad as I thought!”

Given the general sense of doom and gloom we’re constantly seeing in the headlines at the moment – on pensions, the UK economy, markets, and the world in general – the majority of clients have come to us expecting the worst but have been pleasantly surprised.

This is because despite huge uncertainty in the market, in most cases, the numbers aren’t nearly as bad as they first look.

While performance varies depending on the level of risk you’re prepared to take, looking at the chart above, people in the average low-to-medium risk fund have lost around a percent over a 2-year period. You could say all they’ve really done is lose some of their very recent post-pandemic growth.

Of course, it’s not the same for everyone.

If you’re in the higher-risk camp, your portfolio will have fallen by more from its highs, but over the same 2-year period, a higher risk investor in an average fund is up by 9.03%. However, these are generally investors who are earlier on in their journey with plenty of time to make up those gains and meet their long-term goals or with cash reserves to protect them from market falls.

A pill for market anxiety

The challenge then, is shutting off those market jitters, learning to ignore the headlines, and keep focused. That’s our job: to help you to remain calm and to show you the reality of your own particular situation.

We’ve had a lot of queries in the last few months about market volatility – particularly in the wake of the Liz Truss mini-budget fiasco, and scary headlines about the pound falling to record lows.

But there are two important things to remember here that can help keep any panic in check.

The first is, the 24-hour news cycle feeds anxiety. It’s very hard when you’re in the middle of it to separate the genuinely bad news from the sensationalist. For example, there have been plenty of headlines warning of a potential crisis in pensions. A dramatic rise in yields of government bonds (known as gilts) has put pressure on final-salary pension schemes.

But what isn’t always clear is that this concerns only one part of the pensions market. Defined benefit schemes (which pay a fixed amount, based on your final salary as an employee) are a still large, but declining part of the pensions world. Many more of our clients are in defined contribution schemes which are unaffected. So, the ‘crisis’ isn’t really an issue.

Similarly, while economic news has been pretty bad recently, in the last few weeks, with a new Prime Minister, the pound has begun to recover and there are signs of some fiscal recovery. This doesn’t get as much airtime from a news perspective because it’s not very dramatic!

The second thing to bear in mind is that volatility – the ups and downs in the market – are already planned into your portfolio. So even though the current market swings seem big right now, they are not outside the expected parameters. When you’re thinking long term, they’re going to be less of an issue.

Avoid the extremes

Of course, the reason the media deals in extremes is to get our attention. Sometimes this can be a good thing, but when it comes to investing, we often see mistakes being made.

Take for example, cryptocurrency, which has made headlines in recent years promising big returns; buy-to-let is another approach that seems to get a lot of press attention for its success stories. However, buy-to-lets have been badly hit in the current environment, meanwhile bitcoin is down by around 60% for the year so far.

None of the portfolios we offer would be designed to drop anywhere near this level. In a bad year, a risk-level 10 would maybe drop 29.02% at its highest (although we don’t have any clients at this risk rating). A medium-risk fund may drop 14.53% in a year, which while still a large drop, is not as significant when looking longer term. Whilst these figures aren’t guaranteed, the source for this is our own wealth platform which we use when discussing risk with clients and will be immediately familiar to them.

Sensible vs razzmatazz

In a sense, what we’ve seen played out recently in UK politics is a good example of the two different approaches to investing – the high-risk ‘razzmatazz’ approach of Liz Truss, versus the more cautious approach of Rishi Sunak.

Time will tell whether Rishi is more successful than his predecessors, but for the time being his premiership seems to have calmed the markets and put things on a more even footing.

If we were to take one lesson here as investors, it’s that the sensible approach works. In many ways, that’s how we see our work at Bow FS. We won’t be promoting anything as exciting and headline grabbing as the next get-rich-quick scheme – that’s just not the path to investing success in our view.

Sticking with investments that are more tried-and-tested and reliable over the longer term will give you more chance of meeting your financial goals. It’s not flashy and there’s definitely no razzmatazz, but equally, our clients are a lot happier that way - that’s why so many have been pleasantly surprised at their reviews lately! It may be boring but it’s true that slow and steady wins the race.