There must be some way out of here
Said the joker to the thief
There’s too much confusion, I can’t get no relief
– Bob Dylan, All Along the Watchtower
I was tapping out this blog today and couldn’t stop mumbling the lyrics to that classic Dylan song, All Along the Watchtower. So hum it along in your head if you know it and read on! If you want to sing the Hendrix version instead, sure that’s fine too.
To sum up this year so far, we have been somewhat flummoxed, bamboozled and discombobulated. Until, perhaps, we switched the brain off for a while and went on a holiday this summer. Crikey, I needed it. Certainly, a break from the news, the phone and the computer screen is becoming more and more necessary for me every year.
Over the past decade, stock markets have soared, property prices have strengthened again and employment incomes have improved. Yet, many of us remain confused about what the future holds, making us cautious and even fearful for the future (socio-political reasons often being one reason, “markets have gone up, they can’t keep doing that” being another).
Is the overall sense of caution a positive thing or negative? The scale and depth of the 2008 financial crisis lives vividly in our memories and perhaps irrational exuberance is being tempered somewhat this time around. This is certainly positive. The scale of the exuberance and the knock-on exposure to unwieldy personal debt caused a near catastrophic turn of events for many households last time. Perhaps the next slow down (or crash) will be less painfully felt and more easily rectified.
The other way to look at the fear factor, however, is that it has led people to be too cautious. Too cautious is nearly always a negative in the long run when it comes to investment returns on your money.
At City Life we have been cautious for a year or two also, but have we been too cautious? To be fair, I don’t think we have been overly cautious by any means for regular (monthly) savers into pension plans and investment accounts: we have urged well planned risk taking in order to boost returns in the long run. But with lump sums, we have most certainly been a bit more measured with our assertions.
Ultimately, best advice should always consider your investment timeframe, with timing of the investment markets becoming more important when that timeframe is short (actually, nigh on impossible). However, it’s harder than ever now to convince ourselves to commit to long time frames.
Life has become more and more short term and frenetic, and thereby more difficult to focus on the longer term or what’s actually important. Like the joker said to the thief, there’s too much confusion here and many difficult scenarios pop into our heads when we try to plan for the future. However, occasions emerge every so often that give one the opportunity to pause for breath, like a summer holiday.
The last few weeks has been one such time for many of us. News flow has quietened, trading volumes are lighter on the financial markets and people have given themselves a bit of headspace. Portfolios are generally positive over 12 months. All of these things combined give a nice bedrock for a family, household or individual as we plan our finances with a new school year just around the corner.
So, after a somewhat lengthy preamble, I have one simple message in my head, just dying to get onto this blog as we’re humming away. As we do pause for breath just now, and take account of the global, macro environment whilst planning for our own personal journeys within it, I for one am revisiting discussions on timeframe and commitments to that with my clients and friends.
Yes, protect against short term cash flow risks via life assurance and disability cover. Yes, hold our rainy days funds on short term call on deposit.
But with respect to saving for our kids’ educations (and grandkid’s educations!), or providing us with income in retirement, or saving for the round the world cruise in five years’ time, lets commit to timeframes and ignore short term noise even more now.
Lengthier timeframes will allow us to kick off the shackles somewhat and take on more investment risk to generate better long-term returns. In thinking more long term with the right parts of our portfolios, big or small, we can achieve better outcomes without the confusion and fear of what might happen in markets over the coming few years.
Managing Director, City Life