Time in the mar­ket is bet­ter than tim­ing the mar­ket

Birmingham Post - - PERSONAL FINANCE -

What about the US-China trade war? And then there is the state of global geo-pol­i­tics – Rus­sia’s per­sis­tent trou­ble-mak­ing, the mul­lahs in Iran and that funny lit­tle man who runs North Korea.

What mat­ters is time in the mar­ket be­cause that is how you make money, and re­spect­ing the mar­ket.

Re­spect­ing the mar­ket means hav­ing a di­ver­si­fied port­fo­lio so all your eggs are not in one bas­ket, tak­ing a medium to long-term view, and op­er­at­ing on the ba­sis of prob­a­bil­i­ties. Hold­ing your nerve is vi­tal. Shares go up and down, mar­ket cor­rec­tions come and go, try­ing to pre­dict when these things are likely to hap­pen is al­most im­pos­si­ble.

Jump­ing in and out of the mar­ket is rarely a good strat­egy.

It is all too easy to find your­self buy­ing near the top and sell­ing near the bot­tom. Re­mem­ber, time out of the mar­ket is time lost for ever.

And the al­ter­na­tives are not great. Low in­ter­est rates cou­pled with in­fla­tion mean neg­a­tive real re­turns for most savers in spite of re­cent in­ter­est rate rises.

An­drew Wil­liams, an in­vest­ment spe­cial­ist at Schroders, puts it this way.

“No­body knows what the fu­ture holds. Think not in terms of black and white or right and wrong but in terms of prob­a­bil­i­ties.”

Yet how does that square with Brexit tur­moil?

Trevor Greetham, head of multi-as­set at Royal Lon­don As­set Man­age­ment, told Money Mar­ket­ing in July: “Ex­pe­ri­ence to date sug­gests key is­sues will re­main un­re­solved un­til the last pos­si­ble mo­ment and in­vestors will have to re­main open to all pos­si­bil­i­ties.

“Ster­ling could eas­ily be ten per cent lower on a no deal Brexit and it could eas­ily strengthen by ten per cent if the UK ends up in an un­ex­pect­edly close re­la­tion­ship with the EU. Sud­den swings in ster­ling can have a ma­jor im­pact on multi-as­set port­fo­lios.

“In­vestors need to ac­cept that it is go­ing to be very hard to get an edge in terms of tac­ti­cal po­si­tion­ing as the most im­por­tant de­ci­sions will be made be­tween politi­cians be­hind closed doors.

“It makes more sense to fo­cus on in­vest­ing in a mix of as­sets that is likely to be re­silient in a wide range of sce­nar­ios.

“It helps to have ex­po­sure to growth-sen­si­tive as­sets that are likely to be­have dif­fer­ently from each other in dif­fer­ent sce­nar­ios.

“UK eq­uity prices tend to rise when ster­ling falls and vice versa, as they are val­ued off a stream of earn­ings sourced pre­dom­i­nantly from over­seas. UK com­mer­cial prop­erty is val­ued off a stream of ster­ling-de­nom­i­nated rents, so it is less im­pacted by changes in the ex­change rate.

“Brexit is a ‘known un­known’ but it still has the power to move mar­kets in a ma­jor way. No one can pre­dict the fi­nal out­come with any de­gree of con­fi­dence, but ev­ery­one can take steps to en­sure their in­vest­ments are not too ex­posed to the po­lit­i­cal un­cer­tainty one way or the other.” Trevor Law is manag­ing di­rec­tor of East­cote Wealth Man­age­ment, char­tered fi­nan­cial plan­ners,

based in Soli­hull. Email: tlaw@east­cotewealth.co.uk

The views ex­pressed in this ar­ti­cle should not be con­strued as fi­nan­cial ad­vice

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