Having read about the court case involving a client that ordered a Chechen hitman to murder his financial adviser I should maybe start writing these under a pseudonym. Apparently you can do such things on the “dark web” and the most shocking thing is, it was only going to cost £4,000 in Bitcoin. Maybe financial advisers are cheap on the hit man price list.
Hopefully this doesn’t give any of you ideas, particularly as it is likely at some point in the next two years the stockmarket will fall! There, I’ve said it and quite a headline it makes too. However this does come with an important caveat that would doubtless be hidden in the small print if this was a newspaper article, and that is I have no idea when, or by how much. More importantly I am not worried about it happening.
In my industry it appears as if every man, woman and their dog has an opinion on when such a fall will take place and by how much. Now somebody will be proven right but that is much like the accuracy of a stopped clock. In my experience those that do make such predictions are either deluded or have something to sell.
We still have the memory of 2008 etched in our brains and naturally fear something like this happening again. However, the falls we saw at that time (48% in the FTSE 100 index between October 2007 and March 2009 – gulp!) are unlikely to be repeated in our lifetimes. However this does make us vulnerable to the charms of those predicting certainty. So time for a step back and consider what is a typical fall in the markets and what is the cause?
Well believe it or not there have been 12 occasions when the FTSE 100 index has fallen by 20% or more since its inception in 1984. The last one was in February 2016, which I bet you can’t even recall. Most are caused by recession or excessive exuberance and neither appears on the horizon right now. Of course there are unknowns such as what the post-Brexit UK will look like, Trump trade tantrums and inflation resurfacing but we have never had a period where there was certainty as to what the future holds.
However, it would be naive to believe that normal economic cycles have been broken and a recession, which of course only equates to two consecutive quarters of negative growth in GDP, could appear unexpectedly. However, the crucial factor as to why I am unworried by a fall when it comes is that although it is never pleasant to see the value of investments drop I know it will not be permanent.
Since 1900 the average length of a bear market is just over twelve months, but crucially when the recovery comes most of the significant gains happen at the start. This is what makes it so difficult to try and time markets, as it is only with hindsight you can tell when the recovery arrived.
It also means that you have to sit back and accept that to achieve the long-term benefits of investing in the stock market you need to put up with the downtimes. Having sufficient cash or other assets to avoid having to take money out of your investments whilst they are down is another comfort, as is having a spread of different investments, which is what we try to achieve.
So when you do get a valuation that is much lower than previously hopefully your first thought won’t be to Google “how can I get onto the dark web” but you will instead remember that we did tell you this would happen. But just to be on the safe side we will be monitoring those of you making one-off withdrawals of £4,000 from your plans.