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Staying the course

2022 has been a challenging year with volatility in share markets, and the road ahead is likely to be bumpy given heightened uncertainty.  Central banks are far from declaring victory over inflation and they need demand to slow.  Short-term, rates are still going up and picking the top is a bit of a gamble.  Share markets are therefore reacting whenever new information about interest rates and inflation comes to hand.   

We know these times are unsettling for you, our clients, and we never lose sight of the fact we are investing your hard-earned savings.   A level head is required to navigate the path ahead and we hope the following reminders assist your current mindset.  

What to do about the current market gyrations  

Never try to call the top or the bottom in markets. It is one of the golden rules of investing along with taking a long-term view and being diversified. It applies equally to shares, property, interest rates, commodity prices and currencies. It also applies to central banks. 

We regularly remind clients that generally the best and worst days in the market are clustered together, and that panic selling is typically a wealth-destroying endeavour.  We understand the temptation to base your investment decisions on the tunnel vision created by the recent volatility; however, we instead base our advice for clients on a more measured and forward-looking mindset.   

Strategy for uncertain times = take a longer-term approach 

Looking at history, there are always reasons to sell your shares or change investment strategies. 

While the worries of the world feel particularly steep at this juncture, over the long-term share markets go up, as economies grow, and companies generate higher profits. 

The chart below shows the S&P 500 index (500 largest companies in the US) and some of the key risk events that have occurred since 1986. These events included wars, terrorist attacks, debt crises, banking blow ups and, more recently, the global pandemic.  

Chart 1 – Source Bloomberg via Milford Asset Management 

Looking at the chart, you would struggle to tell where the 1987 crash was or other major events. However, despite this worrying sequence of events, if you invested US$100,000 in 1986 and sat tight you would now be sitting on a nest egg of circa US$4.4 million – setting yourself up for a very comfortable retirement. To maximise long term returns you need to stomach the volatility, and as history shows we will get through this and other future setbacks. 

We are using our 30+ years of investment experience to ensure we’re doing the best we can to keep your money safe whilst being well positioned to benefit from a rebound when it comes. 

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