Dear clients

We are sure you have been bombarded by all kinds of media focusing to the short-term effects on investment markets from people’s response to the Covid-19 virus.

Here are a couple of examples of context.

You are sitting in your nice, new, comfortable home which you purchased intending to live there indefinitely or at least for several decades.
You hear a knock at the front door.
Opening the door, you see someone looking rather stressed and bedraggled.
“Yes?” you say cautiously. Your unexpected visitor announces, “I’m your neighbour. I just wanted you to know that I’m willing to buy your house today for 60% of what you just paid for it…”
You quickly interject, “Uhhh… no thanks,” and you close the door… firmly.
Unfortunately for you, day after day, that same neighbour shows up to tell you how much he’s willing to pay for your house. On most days you manage to ignore him. But he seems to shout the loudest when his price is either really high or really low compared to the price you paid.
Most of us would call the police on such an annoying neighbour. However, we can’t call the police on the news outlets that constantly tell us what the market is willing to pay us for our portfolio. But it can be just as annoying.

Similar to buying a house, most people purchase an investment portfolio to provide them with a lifetime of benefits. Despite that very long-time horizon, we are exposed, on almost a daily basis, to information about what the market is willing to pay us if we decided to sell out today. But here’s the rub, we’re not selling out our entire portfolio today, we’re not selling out tomorrow and, in fact, we’re not selling out for the rest of our lives if we can help it.

Selling out now is counterintuitive anyway. When our noisy neighbour offers us a low price for our house, we ignore him. But when offered a low price for an investment portfolio, people can surprisingly react quite differently. The reason they might act differently is usually a combination of fear and uncertainty.
But the ironic part is that many investors feel compelled to sell out just because someone is willing to pay them less than they paid for the same portfolio.

History tells us that diversified portfolios have always recovered, every single time, so why sell?.
You might say, but I’ve lost money and I need to sell while I still can. But the reality is, you only “lose” when you do sell and crystalise the loss. Until then, it’s just another crazy price proposal being put forward by your noisy neighbour, Mr Market.

Here is a short video we have put together to illustrate the noise and the benefits of a long-term view.

If you would like to chat through your strategy, or you know someone who might like a second opinion on their strategy, please email us or give us a call on 0800 NO STRESS (0800 667 873)

Kind Regards,

Warwick Walker

The views and opinions expressed in this article are not intended to be a personalised service for an individual retail client. The views and opinions are general in nature, may not be relevant to an individual's circumstances, and constitute class service only. Before making any investment, insurance or other financial decisions, you should consult a professional financial adviser of FoxPlan Limited. You can find more important information about us here.

Don’t change long term plans due to short term “noise"