What do knitting and financial planning have in common?
Last week was an important week for all of us. Bestowed upon us like the holy grail, the Pfizer/BioNtech’s coronavirus vaccine has instilled some much-needed optimism as we start to see the beginning of the end of what must sure be one of the most chaotic periods of our lives.
If you’ve kept an eye on the markets, you’ll have noticed that the FTSE 100 went up by 4.7% on Monday. If you’ve kept an eye on it all year round, then you’ll have noticed that it has in fact gone up and down like a yoyo.
And – hot off the press – a US vaccine has been announced this morning ‘more effective than Pfizer’s’ which has meant – you guess it – another jump.
Market volatility is expected, in fact, it’s simply part of the process
At the start of the crisis, markets plummeted by as much as 10%, making some people incredibly anxious about the value of their pension. I steadied the ship with a few worried clients by assuring them this was to be expected and that over the long term, things would recover.
I too was worried – my own pension lost 24% in a matter of days over February and March, and I had to remind myself to do nothing. I had ‘skin in the game’ and my own medicine was hard to take, but it’s now back up to its previous level, and in fact, a tad over.
You may have felt the same trepidation. Nobody likes seeing the value of their investments go through intermittent periods of depreciation.
But ultimately, this is what separates the winners from the losers. Reacting emotionally to the markets is a recipe for disaster. This mentality has been romanticised by Leonardo Dicaprio’s movie, The Wolf of Wall Street. Adopting a buy-in buy-out approach to investments does not give you a champagne lifestyle. In fact, it can do the opposite.
Do you want the secret to a successful investment strategy?
Play the long game but make sure you utilise two key elements: consistency and persistence. I know, I know - this strategy seems as exciting as staying in on a Friday night to knit a pair of gloves and a woolly hat. But over time, your efforts will pay off. Come winter, you now have some warm clothing to protect you against the piercing cold. Now that’s value!
Whenever I create a financial plan for a client, I’m always thinking about what’s going to happen long term. It’s a tailored plan that’s to get you from A to B, no matter how the market performs. If there was one thing I would like you to take away from this is this - irrespective of how the market performs, whether it goes up or down, it will eventually even itself out.
Now, I know Christmas is fast approaching, and I don’t want to play the role of Scrooge here, but despite the recent 4.7% spike in the FTSE 100 following the news of the vaccine, expect that figure to fall again soon. It will happen.
Think of market fluctuations in the same way as seasonal temperatures. As part of summer, the temperature rises. Two months later it’s Autumn and the temperature drops. Rotating like a carousel, temperatures go up and down as the seasons change.
The stock market is the same except it’s harder to predict when the next crash or spike will be. Actually, it’s difficult. Very difficult. Instead of trying to out-fox the market with unreliable estimations, just sit tight and trust the plan.
A financial planner, a forecaster, a therapist
Unless you’re a financial expert, with wisdom and experience, it’s hard to ignore pandemic pandemonium. All of a sudden, everyone’s a so called financial expert in the same way that everyone’s recently become an expert on virology.
The tabloids print headlines and articles that create a gripping fear of missing out on ‘rare’ and ‘golden’ opportunities to profit on. This is what we in the profession call ‘financial pornography’. Don’t pay attention to it.
But people fall victim to it every single day and every single day people make impulsive decisions that cost them. That’s one of the consequences of not having a financial planner - being trapped in an emotional state of mind, without anyone to look to for calm reassurance.
Spending every day worrying about your pension, your savings and your investments is no way to live. A better option would be to work with someone who is both qualified and has your best interests at heart. My job is to calm your insecurities, deflect your distractions and keep you focused.
Over time, all of my clients grow accustomed to my approach and become smart, savvy investors that know how to steer the ship when the storm arrives. That’s another point I want to make.
Knit one, pearl one
There will always be another storm and another catastrophe that will rock us emotionally and financially … but the importance lies within your ability to be consistent and persevere towards your goals.
I know there’s nothing exciting about this strategy but it is the winning formula. Just like knitting, it’s better to stay in, ignore the noise and maintain focus. And of course, I will be by your side to ensure that you get there, making sure you follow the pattern and don’t drop any stitches!