In today’s world, we are never more than a finger swipe away from keeping up with the latest intrigue-grabbing headlines. It’s a world designed to grab your attention with the least resistance possible, to distract you from the normality of everyday life with a seemingly never-ending conveyer belt of crises. There seems to be a need amongst society to be worried about something, whatever that thing is. Many of us aren’t happy unless we have something to be unhappy about.
Like anyone else, our clients are swept up by the barrage of noise. This may seem more prominent in recent years, with political controversies such as Donald Trump’s presidency, a nation divided by Brexit or, most recently, Boris Johnson becoming the 77th UK Prime Minister. There is no longer such a thing as a ‘slow news day’.
So why does this relate to us as financial advisers?
Because none of this ‘news’ floats by without us being told how it impacts economies or financial markets (which, of course, it doesn’t… at least not directly). When it comes to investing, this news provides an excuse for the inexperienced investor to either make reactionary decisions with their money or simply not invest at all. These moves are destructive to the ultimate success of a long-term financial plan. Investors believe they are part of the story.
Gut reactions to political uncertainty and mainstream media headlines seem perfectly rational to our clients. After all, they are being led towards panic by broadcasters and media organisations they know and trust. What we know however, as students of the game, is that less is more when it comes to successful long-term investing. As Warren Buffet says, ‘Benign neglect, bordering on sloth, remains the hallmark of our investment process’.
We need to contextualise the noise for our clients. As humans, we are hardwired to live for the ‘now’ and immediately respond to what’s happening in the present. We react instinctively to things that seem threatening to our way of life; such as a new government, conflict between nations, natural disasters or a temporary decline in the value of our hard-earned capital.
The urge to come out of the market in such times can be overwhelming. Thankfully, a lot of great research has been done on the behaviour of financial markets to show how different asset classes, and stock market indices have reacted to newsworthy events in the past. What we can conclude from the vast bulk of this research is that capital markets generally do not care who the current President is or what the Kardashians are up to.
Over a long-term, multi-decade investment horizon (the only kind there is, in my view), the market ploughs on delivering an upward trend in share prices and dividend payments to its disciplined, unwavering owners. This is the message we must deliver.
A client of mine runs a very successful business exporting goods and services to Europe. Naturally, he is concerned about the perpetual uncertainty surrounding Brexit and what this might mean to his future. Fortunately, we are able to build a financial plan capable of exploring different scenarios, always asking the question ‘what does this mean for you?’ Of course, we don’t have a crystal ball, but modelling these scenarios is an incredibly powerful way of putting things into perspective. Having a robust financial plan to use as a base for our conversations, a platform from which to explore different possibilities, has been invaluable in offering him the peace of mind he needs to thrive in his own environment. He is secure that his financial plan has been built to ride out the storm.
Cash flow planning acts as the anchor amidst choppy waters. Through live, interactive planning with our clients, we can show that despite relatively uncertain times, the families we look after remain on track to achieve their most meaningful desires. Nothing is more powerful than telling someone, backed up by a detailed, tangible Financial Master Plan, ‘You’re going to be okay.’ Our meetings offer an escape from the noise; a safe space for people to explore the things that really matter in the lives of them and their families.
There is a special club reserved for those who can block out the noise and stay true to their long-term investment goals and financial plan, and its members will be rewarded handsomely.
Sean Banks is an IFA at Premier and runs The Finance Guy. Read his full profile here.
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