Beyond the Tempest: coping with investment market turmoil

The Early Warning Alert issues: severe winds, heavy rain and damaging hail are on the way – areas to be affected are named and some safety measures accompany the alert.

What do most people do when they receive the alert?

How soon after the severe weather event is life back to normal?

Unless we are directly ‘in the line of fire’ we will probably only show passing interest; and if our specific area is to be affected, unless the storm threatens our personal assets (or family) directly we wait it out anticipating what will happen during the storm, perhaps begrudging the interruption to our busy schedule – but always ready to move on with the continuation of our business or recreational activity.

How is it that we cope so well with the natural events of storms etc, but have much greater difficulty coping with turbulent investment markets? Is  there an opportunity to hone our investment experience around the natural world?

'calling on the recovery protection'

If our approach is to rely on insurance, can we do that with our investments as well?

Over many years, financial analysts and statisticians have noted the effects, consequences and recovery periods of turbulent financial markets (speak to an experienced financial adviser to see some charts showing these periods graphically). A book that I recently read contained the following relevant piece:

“Over the 70 years up to the end of 1992, stocks provided their owners with gains of 11 percent a year, on average. In spite of all the great and minor calamities that have occurred in this century – all the thousands of reasons that the world might be coming to an end – owning stocks has continued to be twice as rewarding as owning bonds.

In this same 70 years in which stocks have outperformed the other popular alternatives, there have been 40 scary declines of 10 percent or more in the market. Of these 40 scary declines, 13 have been for 33 percent, which puts them into the category of terrifying declines, including the Mother of All Terrifying Declines, the 1929-33 sell-off.”

[Extracted from ‘Beating the Street’ by Peter Lynch – a former Investment Director at Fidelity in New York.]

After the storm passes, life continues for the majority at the same or at a heightened pace – and so it should be with your wealth management. Beyond the ‘bad times’, there are still the needs to provide a home, food, clothing and education – as well as to prepare for retirement (even if that is a long way off).

We urge you to take the following action: review your current financial position to see if it is capable of meeting your future expectations – and discuss the situation with your financial planner if it appears to be ‘coming up short’.

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