Equity highs – should we be worried? I think about this often for my clients, and in many instances, I have become a financial behaviour coach – trying to tell certain clients to stick with the plan and not to time the market, and for some younger clients to take on more risk as they have time on their side.
It is easier for an adviser to move a client into lower risk, as there are fewer ramifications. However, for the betterment of you, the client, it’s better to ride the wave and be courageous even in difficult periods. Patience is your friend when it comes to investing, and those that have the highest resolve often do the best. There is no doubt that there will be a pullback in the future, and this could be 10%, 20% or even 30% – or even more.
What I’ve learnt over the last 14 years is that trying to time the stock market is futile. Perhaps buying in at the bottom is smart, however, selling at the top and buying back in at the bottom is near impossible. If I could predict this, I would be a very rich man. I also don’t believe anyone that tells me they know where the market is going actually does. In many ways, the stock market is very unpredictable.
However, to put your mind at ease and help you feel stronger about your investments even though we’re at record highs, remember what the Stock Market represents. The Stock Market represents the best companies across the world and you’re getting a small slice of that in your Pension or Investment. Most importantly, over time, companies come up with new ideas, better ways to do things, and figure out ways to make more money which in turn feeds into profit, which then feeds back into Investment Returns. Humans are productive, courageous, and resilient. The world Stock Market represents the best of entrepreneurship worldwide.
Do you think the best entrepreneurs in the world will make money over the next 10, 20 or 30 years?
If so, you should continue investing, even if we are at an all-time high.
HERE ARE MY 10 INVESTMENT PRINCIPLES
1. INVESTMENT AWARENESS
Make sure you’re aware of what you’re investing in. When I take on a client, I conduct a rigorous analysis of where they’re invested to ensure their investment fits for purpose. Sometimes, I come across new clients who have no idea where they’re invested or the risk involved, or on the opposite side of the spectrum are invested in low risk, which provides no potential to earn a return. If you’re a client of Pure Finance, I will make sure your investment is fit for purpose.
2. DON’T SPECULATE, INVEST
I don’t recommend investing in one stock or “the next big thing” as this is gambling. In investment terms, this is known as specific risk. During the Financial Crisis, if you had invested in BOI or AIB, most of your wealth would have been wiped out. Nowadays people have their wealth tied up in tech shares (Facebook, Google, Microsoft etc.). These companies are strong, there is no doubt. However, all your wealth should not be invested in one company (it doesn’t matter who it is). Investing should be like paint drying; very boring but you will see results if you’re patient.
3. DIVERSIFY, DIVERSIFY, DIVERSIFY
This is extremely important. It’s important to not have your eggs all in one basket. Your investment should incorporate the best companies worldwide and should include different sectors. It should include other assets such as bonds, property, and alternatives. John Bogle, the founder of Vanguard, famously said, “Don’t look for the needle in the haystack. Just buy the haystack!”.
Trying to time the market is futile, but if you can buy into the stock market every month you have a better chance of catching the stock market at a drop or a decline, which is favourable for you. It also makes investing automatic, and you don’t have to think about it.
5. IGNORE THE MEDIA
The media sell negativity; this is especially true when it comes to investing. Whenever I turn on CNBC, Bloomberg, or any other investment channel, they thrive on negativity. Unfortunately, the negativity might make you more worried about your investment in the short term, and it can lead to a disastrous decision. Ignore it, the next downturn will pass too.
6. REVIEW COSTS AND FEES
I know this is perhaps controversial for me to put this up here, as I charge a fee for my services. However, I charge middle of the road fees (I’m not the cheapest and I’m not the most expensive in the market). My fees are reasonable. However, I have come across ridiculously high fees in the marketplace. Make sure you’re being reasonably charged.
7. STICK WITH YOUR PLAN
It’s important to stick with your plan, whatever that might be. If you have enough money to live your required lifestyle and don’t need any more, is there any point in investing? The reality is most people need to invest as they have not hit their goals, and this gives them a better chance. When you hit your goals, enjoy the fruits of your labour and spend it.
8. FORGIVE YOURSELF
We’re all human, and most of us have made investment mistakes, myself included. The important thing is to learn from your mistakes. I bought Bank of Ireland Shares in 2008. This was fueled by greed, thinking BOI could not go lower than €1. Indeed, they tumbled a lot lower – I lost money here. I’ve learnt that buying individual shares is a gamble and you’re better off investing in a fund.
9. DON’T BE OVERLY OPTIMISTIC OR OVERLY PESSIMISTIC
The S&P 500 has done an average of 10% per annum for the last 100 years. If you’re getting returns over 10%, this is probably unlikely to continue. Equally, if you’ve experienced a loss, there will likely be an upturn soon. Remember, investing is a very long process so don’t get too caught up in the big swings either way.
10. IF IT SOUNDS TOO GOOD TO BE TRUE, IT PROBABLY IS
I have come across certain investments that guarantee 10% with no risk. There is no such thing. There’s always a risk. If it’s too good to be true it generally is.
One of the worst times to invest in the last 100 years was in October 2007. This was the peak before the financial crisis.
Between October 2007 and 9th March 2009, the S&P 500 (which represents the top 500 large companies in the US) dropped by 57%.
However, what a lot of people don’t realise is that since then, the S&P 500 has generated an average of 10% per annum.
I’m going to take the view that the next 10, 20, or 30 years will have more positive years than negative years, which will help us all grow our Wealth.
If you have any investment queries, please get in touch at email@example.com.
* Please note this blog does not constitute financial advice. This represents the personal views of Eoin Wilson. Pure Finance Ltd is regulated by the Central Bank of Ireland. Pure Finance Ltd will not be held liable for any errors or omissions.