We at Barry Fleming and Partners have been advising clients on their financial planning needs for over 45 years. During that time we have experienced the many vicissitudes in the markets, in taxation, and in global politics.
Our planning is based on advising clients on balanced portfolios that meet their individual income and capital requirements within their own tolerance for risk and within their particular timescales.
At this difficult time for the world we thought it appropriate to summarise some key points of which we are always aware.
Understanding Market Volatility and Basic Investing Principles
Financial history shows that from time to time markets experience bouts of heightened volatility. These setbacks could be the result of any number of factors: economic uncertainty, monetary or fiscal policy changes, financial contagion or geopolitical tension, for example. With this in mind, let’s look at the last 30 years and highlight what lessons can be learned for the future.
A History of Time – A Long Term View of Equity Markets
The last 30 years have seen a number of significant events marked by orange dots on this graph. Some of those key events include:
(*) December 1991 – the collapse of the Soviet Union
(*) February 1994 – Bond market crisis
(*) February 1995 – Barings Bank goes bankrupt
(*) August 1998 – Russia stops paying its debts
(*) March 2000 – The Technology bubble bursts
(*) September 2001 – the 9/11 attack on US soil
(*) November 2002 – the SARS epidemic threatening Asia
(*) July 2007 – Real Estate Crisis in the United States
(*) September 2007 – Lehman Brothers goes bust
(*) December 2007 to June 2009 – the Great Recession
(*) August 2015 – the Stock Market crash in China
(*) December 2018 – Global Growth concerns
(*) March 2020 – the Coronavirus epidemic
[ Chart provided by Fidelity International. Data source for chart: Datastream as at 31/12/2021.Indices calculated in GBP, based on daily returns/closing prices, disregarding inflation. The chart shows the indexed performance of the UK equity markets over a 30-year period 1991-2021 ]
“The value of investments, and the income from them, can fall as well as rise. Past Performance is not an indicator of future returns”
And now there is the Russian invasion of Ukraine. It is a grave situation indeed, but our only thoughts today are not about short-term market movements, but about people – the people of Ukraine. Our hearts go out to them.
Putting Time on your Side – What impact does holding period have on your investment?
Investing in equities, if appropriate to your personal financial plan, can clearly be very rewarding. Over a short-term investment horizon you can see gains – but also potential losses. That is why we recommend investors take a long-term view for equity investment and always within a balanced portfolio.
Time in the Market, not Timing the Market
The volatility that equity markets often experience can be understandably unsettling for investors. However, sharp falls tend to be concentrated in short periods of time. Similarly, the biggest gains are often clustered together. It is also quite common for a large gain to follow a big fall (or vice versa).
Accordingly, an investor who tries to anticipate when the best time is to invest or disinvest runs a very high risk of missing the best gains. This can have a big impact on their long-term return.
Investing across the Market – The Benefits of Diversification
The performance of different asset classes will naturally vary over time. Individual asset classes have their own unique characteristics and return drivers, so market conditions and macro events will affect them in different ways.
A higher level of investment risk – usually found in equities – often means that the potential for growth is greater, but there’s also a greater possibility that an investment might fall. Government bonds or cash, on the other hand, carry lower risk, but with that comes lower potential returns.
Of course, everyone has a different tolerance for risk which will determine the assets they invest in. Holding a diverse range of assets can help investors manage risk and smooth returns over time compared to investing in one type of asset.
In Summary
In your financial planning, there will always be some unknowns and things you do know can change. Planning your income and capital requirements is like chasing a moving target. It requires focus when making your plans, and regular reviews of those plans to check that you remain on target.
And so it is prudent to plan your capital and your income requirements leaving room for those things that may change unexpectedly consequently improving your chances of having a financial cushion to cope with what life throws at you. We call it Lifetime Financial Planning …
We have set out above what is only a brief summary of some key points that involve quite complex considerations. Always seek relevant professional advice before taking, or refraining from taking, any action.
We are here to help
Remember, we are here to help so please do not hesitate to contact us regarding your financial planning situation. Reviews and our Lifetime Financial Planning Service are all part of our added-value services for our clients.
Barry Fleming & Partners has grown from a tax advisory background into a broader business that encompasses investment management. Both things matter for wealth management, retention and creation. That expertise makes the company strikingly different from others.
This capability allows Barry Fleming and Partners to use its strength in tax advice to take a 360-degree-view of a financial situation to give much broader, more comprehensive advice.
We bring together up to the minute tax, estate, investment and retirement planning advice to create individual, ‘joined up’ financial strategies. This allows our clients to understand and have confidence in how they can best control, retain, and build their assets and income to achieve their objectives with least risk.
A high level of service is key to our long-term client relationships. We work collaboratively. That means our clients can benefit at all times from having ready access to our team of financial planners.
Barry Fleming & Partners are an independent financial advisor specialising in ISA’s, Pensions, Tax, Trusts, Estate Planning, Inheritance Tax Planning (IHT) and other Financial Planning areas. Please don’t hesitate to call on 01488 608 686 and ask to talk to one of our financial advisors. Alternatively use the contact form on our home page.