Lowes Magazine 122

INVESTMENT

AS THE WORLD MOVES ON FROM THE impact of the pandemic, through an invasion in Europe, to greater economic uncertainty, Lowes Consultant Chris Milsom considers the best course of action for investors. What to do in a crisis how did they know when best to reinvest? It would have been the very next day, because from that point onwards their money would have started growing again. But how many people would have taken that course of action – or known to do so? We saw the same kind of response with the onset of the pandemic in 2020. The uncertainty caused by the unprecedented impact

of the new virus, caused people to panic and have knee-jerk responses which will have cost them money because markets quickly began recovering as governments took action. On the other side of the coin, is the question whether people should invest or put off retiring because of uncertainty in the markets. What we must always keep in mind is that markets reflect mass investor sentiment. Logically, the best companies will continue to create value and grow. Keeping your head while all about you are losing theirs is how investors avoid solidifying losses. In the past 15 years we have seen a global Financial Crisis, Brexit, a two-year global pandemic and conflict in Europe – major events that have impacted markets – and yet over time it can be seen that stockmarkets recover from their falls and continue to rise. There have been many stockmarket ‘crashes’ witnessed since the FTSE 100 was established in 1984 at a base of 1,000, yet despite them all, the index has climbed to a high of over 7,500. In addition to the rise in the index, investors also have benefitted from dividend payments, reinvested or taken as income, which have delivered further value over the years. It is this cumulative and long-term trajectory on which we need to focus, which takes into account that with upside inevitably there will be periods of downside. Which is why when we experience these periods of short-term volatility it is important to be clear that financial plans should always be focused on the best longer-term strategic decisions. As advised investors, you are in the best position, as we design the plans and portfolios for our clients with those strategies front of mind, including diversification of portfolios with a wide range of investments across different areas. You can be more sanguine in the face of short-term volatility because many of you will have experienced market crashes before and/or know that as your Independent Financial Adviser we have your back. For us it’s business as usual.

There is little doubt that in terms of the UK economy and our savings and investments, we are facing continued uncertainty. The unprecedented events that have happened over the past two years, exacerbated in Europe by Russia’s invasion of Ukraine, have caused marked disruption to the way we live. There is no doubt there are tougher economic times ahead. Most countries are now facing supply chain issues, inflation is continuing to rise, there is the prospect of central banks instigating a faster increase in base interest rates and the cost of energy is increasing. In addition, there are further pressures on commodities, including gas, oil and wheat, due to the war in Ukraine. All of these will add to the economic issues and affect the cost of everyday living. Stockmarkets have taken hits and with the economic uncertainty, and the tougher decisions this will inevitably engender, stockmarket volatility, which is driven by investor sentiment, is likely to continue. There can be an overwhelming urge in these times is to step out of our investments. This is the natural fight-or-flight mechanism that’s hard-wired into our psychology and subconscious. It can be very hard to ignore. But in times of market volatility, logic over emotion must prevail and time and time again, taking a contrary stance by staying calm and avoiding a knee-jerk reaction has been proven to be the best policy. Investments sold while markets are suffering from the uncertainty of geopolitical events, is money lost both now, as investors could be selling in a market downturn and potentially for less than they paid for the asset, and in the future, as the capital will be gone and so investors will not benefit from any market recovery once more positive sentiment returns. The biggest day of outflows from the markets during the credit crisis in 2008/09 corresponded with the low point of the market. This means more investors sold on the lowest day than at any other point in the two years before that. They exited out of fear but

7 Lowes.co.uk