Despite nearly two years of living with the consequences of Covid, by the time 2022 began many of the world’s stock markets had reached the highest levels ever seen.

For the first time in nearly 3 decades, the western world is now seeing soaring inflation. And it’s not just energy – it’s having an impact on nearly everything.

As this article is being written, Russia’s invasion of Ukraine has entered its third week. In addition to the dreadful consequences for the innocent people that are being caught up in this conflict, the world’s stock markets have, in response, fallen significantly in value.

Many of my recent articles have related to the uncertainties of stock market investing. They have argued that in difficult times it becomes essential to have a sound strategy for investing and to stick with that plan even in difficult times.

Many people with stock market investments will be tempted to sell them and wait for a more favourable outlook to buy them back. Some will feel that there will be an investment guru, somewhere, who will hold all of the answers to this current uncertainty. Over the years researchers have examined wide-ranging strategies based on analysis of earnings, dividends, interest rates, economic growth, investor sentiment, stock price patterns, and so on. If someone could develop a profitable timing strategy, we would expect to see some funds employing it with successful results. But a recent Morningstar report (Tactical Asset Allocation: Don’t Try This at Home) suggests that investors should be wary of those claiming to do so.

We should not be surprised. Successful timing requires two correct decisions: when to reduce the allocation to shares and when to increase it again. As most of us do not have perfect foresight, it is highly unlikely that both decisions would be correct. The evidence tells us that when markets do rise again the recovery is often sudden and unexpected.

The conclusion that evidence-based investors reach is that it is much better to stick to the long-term plan. The long-term plan involves the patient accumulation of wealth and a strategy that accepts that while markets go down from time to time they do generally recover and achieve a return in excess of inflation.

The long-term plan will certainly cause some pain during uncertain periods. As the infamous Corporal Jones said to Captain Mainwaring ‘Don’t panic.’

April 2022