After a tough 2020 and the three day lock down in greater Brisbane just before Easter, we’ve been reflecting on what that means for you, your families and your financial strategies. Relatively speaking, we have been lucky here in Australia, but given the continued unpredictability of COVID-19, and the slow vaccine rollout, it’s perhaps wise to remember the lessons we’ve learned that will be worth holding onto through the rest of 2021 and beyond.
1.Markets are all about probabilities and risk management
Or let me say this more bluntly – investment markets cannot (unfortunately) be timed with precision – by you, me, or any other expert. Let’s say, hypothetically, we had anticipated there was going to be a global pandemic, avoiding the sharp declines in the global stock markets, as you decided to withdraw your investment(s). Even with this knowledge, it would have been extremely difficult to predict the timing and strength of the rebound in the market. In this case, the severe downturn has (in many instances) corrected itself within six months. Ultimately, you would likely still be sitting on the sidelines waiting for a better entry point to get back in.
It is critically important to consider the probabilities of success, through good and bad times. Often the worst days in the market are followed by the best days, without any obvious or knowable catalyst for the rebound. Sensible risk management allows you to be invested through both the good and the bad to reap the benefits of gaining long-term market returns, which translate into wealth creation over time.
2.Reconnect with what is truly important to you
The best financial advice is personalised and tailored with strategies to help you reach your goals. If you start feeling anxious about your finances or the state of markets, take a break from day-to-day market monitoring and check in on your financial goals. I’d love to be involved in this process. By reacquainting yourself with what’s important to you in life, and how to secure those things, we can adapt and improve – including why they are important to you, and how your current financial strategy can help you reach them. “Staying the course” is never easy amid volatility or market nerves, but goal setting can help slow down a racing mind, take a breath, and redefine what you really want in life.
3.Be your own devils advocate
If you’re starting to lean toward a change in your financial circumstances (for example, selling an underperforming investment or chasing the latest popular investment trend) ask yourself why someone else might buy or sell that same investment. Our minds have an easier time remembering and noticing facts and ideas that support our opinions, but forcing ourselves to take a different perspective before acting can reveal every angle of a decision. This technique can also help you when you’re sifting through information online. If you keep coming across evidence that supports your opinion, challenge yourself to find a site that convincingly shows the opposite. Or even better – come to me and we can explore it together.
4.Get to know your biases and turn down the noise
Reading or hearing about unexpected asset value changes can put any financially-minded person on edge. You’ve hired us to help manage this for you, so one useful tactic is to set a schedule for how often you check your portfolio to turn the volume down on that noise. The schedule should focus on the appropriateness of your investments in relation to your financial goals in life.
In relation to this, research shows that understanding our behavioural biases can help us spot them in our decisions. There is a saying that the best financial advisers are just as aware of psychology as they are financial analysis. Taking some time to read about the psychology behind our decisions and emotions is an advancement toward financial independence.
5.”The intelligent investor is a realist who sells to optimists and buys from pessimists”
This saying is an old favorite that comes from Benjamin Graham, one of the founding fathers of value investing. We’ve seen the full spectrum of fear and greed in the past year – but it pays to be a humble realist. Humans have overcome incredible challenges throughout the centuries, and we are on our way to overcoming the latest challenge. But don’t be fooled into thinking the recovery will be smooth or doomed. It will have speed bumps, with each change in sentiment creating potential opportunities for the intelligent investor.
We are well placed as your go to resource to help you thrive financially, acknowledging tomorrow’s challenges and working towards a shared goal of strong financial wellbeing.
6.Good financial advice takes a full spectrum approach
We understand the interaction of all the connected parts of your financial strategy needs and how a change in one area has a flow on effect in other areas. Our comprehensive and disciplined approach to the financial strategies that deliver valuable outcomes to your needs and what important to you in life, is what makes the most difference over the longer term.
Remember, things will always change in investment markets, government legislation and your personal circumstances. We are looking forward to conitinuing to work with you, maximising your financial outcomes no matter what the future throws at us. Our approach helps you make smarter financial decisions.
Happy Easter to all.
Please stay safe and well,