Sadly, world events have been at the forefront of our minds over the past couple of months and we are seeing in the media the impact and devastation of war and the suffering in Ukraine. Our newspapers and media are also highlighting the affect of high inflation with the cost of electric rocketing and the cost of re-fuelling our cars at the petrol station at an all time high. Added to this we have the real possibility of an increase in interest rates which will put a smile on the face of savers but worries for those people with mortgages.

All of this uncertainty about the future, has a major impact on prices of shares and bonds on the global stock market. After all, investors are investing for the future and expected returns from companies or from bonds become less certain. This creates volatility in the markets and daily fluctuations as we have seen many times before begin to come into focus. 

Volatility is not just a recent phenomenon. We have been through a period of low market volatility and relatively good stock market returns in recent years. This has in fact been out of the ordinary, but it is easy to become accustomed to these market conditions and increase your holdings considering them to be the new ‘normal’.

This normal behaviour can have a damaging effect on wealth creation if not understood and addressed appropriately.

Source: Carl Richards

Investment decisions based on emotional reactions and recent performance don’t generally end well. By the time you've jumped on (or off) an investment bandwagon, chances are you've already missed out on whatever advantage you might have gained. Instead of trying to time the market, look at the big picture, stick to the strategy and think long term.

One safe prediction about the financial markets is that they're completely unpredictable. That's why market-timing and performance-chasing seldom work.

Granted, it's hard to ignore market turbulence and the storm of "expert" advice it generates – especially when your portfolio is suffering. The best way to build wealth over the long run is to follow a disciplined long-term investment strategy with an appropriate asset allocation for your time frame, objectives, and risk tolerance.

No journey is without danger, and when you're investing, there's always the risk that you'll lose money. But you stand a better chance of staying on track by keeping emotions in check and avoiding some common mistakes:

Market-timing. You can't predict the market, so resist the urge to make major changes to your portfolio on a whim.

Chasing performance. Basing your investment decisions on what the market did yesterday is like trying to drive by looking only in your rear view mirror.

Miscalculating risk. Know your risk tolerance and allocate your assets accordingly.

Overweighting. Are all of your eggs in one basket? It can be tempting to load up on one particular type of investment, especially when that investment is doing well. But in doing so, you could be inviting misfortune.

It's not always easy, but having a plan, and the discipline to stick to it, is the best way to reach your financial goals.

April 2022