You could have just about doubled your money over the last seven years doing the easiest investment thing imaginable.
We’re not talking about picking some hot stocks. Or buying and selling at a furious (or even casual) pace. No betting, just investing.
No fancy footwork, nothing at all exotic, nothing “sophisticated” (a special finance industry term that means “idiotic”), nothing unregulated.
No car parks in Hull, windfarms in Wales, Cape Verde holiday homes, Spanish vineyards, Brazilian social housing, Papuan timber. (All of which have appeared in my inbox, I kid you not.)
Nope, you just needed to buy and hold the biggest and best companies around the world via the indices they can be found in.
Something like 40% in the US, 25% in the UK, 15% in Europe, 10% in Japan, 5% in Emerging Markets and 5% in Asia would have done it.
Inflation totalled about 10% over the same seven years. That means you would have almost doubled your money in real terms.
You’d have almost twice as money. IN SEVEN YEARS.
If you’re in your 40s your pension money could be invested for the next 40 to 50 years.
Money invested today could double five times. That takes £100,000 to £3.2m.
So, so, so very simple. And so, so, so very dull.
But there’s a huge stumbling block – us, humans.
We just don’t have the patience, discipline and temperament to do sensible things consistently.
Even worse it seems we seek out courses of action that are sure fire losing strategies.
That’s why there is so little relationship between investment performance and investor performance.
So much for the rational investor.
Just look at some of the “bad” moments in those last seven years that would have needed resisting:
• Being underwater for the first six months;
• 16.5% drop over a month in 2011;
• 11% drop over two months in 2012;
• 8% drop over a month in 2013;
• 6.5% drop over a month in 2014;
• 5.6% drop over a week in 2015;
• Earning less than cash in the 12 months to October 2015;
• 6.4% drop over two weeks in 2016.
That’s a rough patch each and every year (2017’s has still not appeared). And at least 24 out of 84 losing months including six and twelve month streaks.
Or to put it another way, 30% of the time you were “losing” money.
The other 70% you made out like a bandit. BUT ONLY IF YOU DIDN’T MOVE A MUSCLE!!!
The turbulence comes along much more often than we realise. Sit still and you’re fine, pull the emergency handle and jump out and you’re almost certainly not [Insert Ryanair joke at your leisure].
What’s the answer then?
You simply need a sensible planner to sit alongside you, to hold your hand, to coach, comfort and reassure you.
And to do all they can to help you keep your patience and stick to your plan.
And helping you commit each and every one of these to memory wouldn’t go amiss either. Altogether now:
1. Investment decisions should on be based on what we know, not what we feel;
2. Have no market outlook whatsoever;
3. The downs are temporary, the ups are permanent;
4. Good planning outperforms great investments, always;
5. Volatility is not risk…it’s volatility. You don’t lose until you sell;
6. Financial journalism is the force of darkness;
7. Journalists sell copy, not advice;
8. News is irrelevant to long-term performance;
9. Whenever you need money, there will be a smart place to get some;
10. You wouldn’t be human if you weren’t afraid.
future proofing your finances
020 7993 4898
advice@townclosefp.co.uk