The current situation in the global markets is about as uncertain as it could be. A recent bear market – when markets have declined by 20% from the previous market high – seems to be behind us, but returns aren’t yet rising to the levels they were at before the bear market either.
This might have you wondering where the markets could go next. Will fresh highs bring about continued recovery, or will we see the third decline in four years? Having no idea what could happen next is often more difficult and emotionally draining than knowing for certain that a decline is on its way.
There is also a third possibility: sideways drifting. This one doesn’t inspire great confidence but it’s also not something that many would consider especially worrying. You could say that it would simply be a continuation of recent experiences on the stock market.
Uncertainty can lead to you putting plans on hold
When everything is so uncertain and confusing, sensationalist media headlines tend to lean into the more negative side of things. They love to feature terms like “double-dip” and “dead cat bounce” alongside interviews with experts sharing their opinion that the market could shortly go into a steep decline or recession.
Particularly with such a recent bear market on your mind, you could be tempted to tweak or even entirely overhaul your long-term financial plan. This is because humans have a tendency to place a disproportionate amount of significance on recent events, believing them to be more likely to reoccur than more distant memories.
If you make long-term financial decisions based on this false belief, even though you are usually doing so with the best intentions of protecting your wealth, it can lead you to doing things that are detrimental to your long-term goals and financial stability.
For example, you might decide to pause contributions into your savings and investment plans because you’re worried that your wealth could take a hit again if another bear market occurs soon. This is known as “recency bias”.
Stock market conditions shouldn’t affect your financial plan
If you can sense that you’re being swayed into inaction by the noise of media headlines, it’s time to power through the uncertainty.
Your investment portfolio was balanced to suit your needs and goals, and those don’t change during a bear market.
So, trust in the principles that you followed when you and your planner crafted that portfolio and keep paying into your accounts as you normally would. Research and experience show that this really is the most sensible approach, and one that is likely to reward those who are consistent and trust the process.
It might be reassuring to know that during the 2008 recession – sometimes referred to as the Great Financial Crisis – lots of families were able to grow their generational wealth by doing exactly as we’ve described above.
When you continue to make deposits into your portfolio during a downturn, fund units are cheaper and you can therefore buy more of them. When markets eventually rise, you’ll be in a great position to recover your losses and continue to grow your wealth.
So, to invoke a little wartime spirit: keep calm and carry on. Stop worrying about the next bear market, because while you’re patiently investing and following your plan the next market high could be on its way.
Get in touch
If you’d like to build a financial plan that lets you achieve your long-term goals and filters out the noise of the headlines, we can help. Either contact your financial planner directly, email us at hello@ascentawealth.com or fill in our online contact form to organise a meeting and we’ll get in touch.
