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TCFP27: Nostra culpa…

by | Mar 1, 2018 | General News, Investment News

Out of 193 client accounts we received panicky emails from two during the recent stock market excitements.

That’s not a good result.

If we had done our job properly, they would not have been surprised to see their account values dip sharply.

That should never happen. The surprise that is, not the dip, that’s PERFECTLY NORMAL.

There should be no surprises when it comes to investing. You should all be perfectly prepared for what WILL (not might or could but WILL) happen from time to time.

Surprises lead to panics. And panics lead to people blowing up their plan and themselves financially.

And then, there they are, sat deaf as a door post in the middle of their own financial Armageddon.

Avoid surprises, avoid Armageddon.

That brings into sharp focus our role as a coach and our ability to help people avoid panic. It’s really the key role we have – help people avoid doing daft things at the worst moments.

With that in mind, below you will see a list which makes it absolutely clear what will happen with money you have invested.

There are some assumptions, all of which apply to TCFP clients. Hopefully they apply to you too:

  • You have a sensible, diversified portfolio containing the 1,500 (or so) biggest and most successful companies round the world.
  • You might have mixed in some bonds, commodities and property to add to that diversity.
  • We are talking about invested money, not the pot you have set aside to cover the next three years’ expenses. Plus an emergency fund, of course.
  • Those three years should be covered by cash and/or known income (e.g. State Pensions and company pensions).

Here’s the list:

  1. You should bank on an average annual drop of around 10-15% – i.e. Values will drop by 10-15% then recover.
  2. That’s each and every year, the last two years have been unusual because this has not happened.
  3. We will not flinch, to profit from this perfectly normal occurrence we would have pick both the top and bottom of the market.
    That means we would have to be right twice.
  4. We won’t be, nor will anyone else consistently.
  5. By far the best thing to do is sit on your hands.
  6. Furthermore, the chance of any decline over the next 12 months is about 25%.
  7. There’s about a 13% chance it’ll be about 10%;
  8. And a 6% chance it’ll be about 20%.
  9. All of which means that, 75% of the time, values fall then recover in full during the same 12 month period.
  10. The other 25% of the time they recover not long after.
  11. All declines to date have proven to be temporary.
  12. In return for this mild indisposition, you can expect inflation beating returns on average.
  13. And that’s what matter most if you have any expectation of maintaining your standard of living.

If you’re not being coached and prepared in a similar way, you can expect several surprises and the ensuing feelings of unease and panic.

And apologies to our two clients, we were not worthy of you on this occasion.

future proofing your finances

advice@townclosefp.co.uk

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