Should I invest now or wait for greater falls? Are we heading into a recession? What about stagflation? Are equities cheap or expensive?
In response to these questions, consider this data.
The last 12 months* | The last 3 months* | |
Developed market equities | -11.3% | -3.9% |
Emerging market equities | -15.8% | -3.3% |
Global investment grade bonds | -13.8% | -3.0% |
Global high yield bonds | -13.0% | -3.7% |
Global Property** | -15.9% | -7.2% |
*All returns quoted in USD, as at 31 August 2022. Source, Bloomberg
**Using the S&P Global Property index
And this graph, which shows the performance of global equities, from December 2000 to date:
Against this backdrop, it would be easy to argue that you should invest now providing two criteria could be satisfied:
But the questions above really push for shorter term answers because they are driven by some of our most primary emotions. We want to know whether there will be a better time to invest, whether we expect further short-term market losses. In our minds, we imagine worst-case scenarios: 70s style inflation or a crash of the magnitude experienced during the global financial crisis.
There is natural fear of the unknown behind these questions because the reality is we are living in a period of high inflation, low growth, increased energy costs, labour market squeezes and rising interest rates, while a war between Russia and Ukraine rages on. Darker questions form at the periphery: will Putin take the nuclear option? Will China take the opportunity to invade Taiwan? Will civil unrest once again become prevalent in the US? How will Europeans heat their homes this winter?
I am periodically asked these questions. And, although we try to forecast what could happen if one of these scenarios panned out, the truth of the matter is we don’t know. None of us knows what the short term might bring. Most short-term forecasts predict that if there is a recession in the US, it will not be a protracted one. But we don’t know what is around the corner. Putin might take the nuclear option. China might very well invade Taiwan. And the flipside is also true. The US might get its soft landing, manufacturing data may continue to surprise on the upside and the energy crisis might be resolved. Against this, you must choose between a guaranteed loss of 8% per annum, or more considering inflation rates (as personal inflation figures vary greatly), and a possible temporary loss if money is invested.
You see, forecasting must necessarily be based on models. These use historical and current information to provide a range of probable outcomes, and they vary greatly – they could be mathematical or intuitive, fundamental or extremely complex. To do this, models use assumptions, aggregations and probabilities. For example, you can make assumptions about what would happen to markets if inflation in the UK were to drop to 6% next year. The goal would be to forecast options that would be closest to the real picture.
This is incredibly complex. Not only because of variables and data to be considered, but also because it seeks to attribute some degree of logic to human behaviour, in millions of consumers and market participants. Models need to predict how politicians, policy makers, consumers and investors would react in such a scenario. How can we predict what one of these key players will do, let alone billions of them? This is not to say forecasting does not have its place; it is an integral part of what our team of analysts do. To each scenario we attribute a series of probabilities based on research, data and experience, and indeed this points us in the right direction most of the time (hence our first quartile performance of late – for more information on this, please watch this short video).
But short-term forecasting tends to fail most frequently at times of pivotal change. That is why it is the long term and not the short term you should consider when investing and why the question of time frame is so important. That is also why the old adage of “time in the market, not timing the market” proves true. Put a different way, if we could set the clock forward and travel into the future seven years from now, I have no doubt we would emerge to see we are in the money – we made the right decision to invest. Because, regardless of what the next 18 months bring, in seven years equity markets will be higher than they are now, barring a catastrophe of proportions we have not yet considered.
However, it is not in our nature to ignore the short-term noise. And none of us have access to a time machine. This is why the question of composure or risk tolerance is so important. Are you able to remain composed when the headlines scream disaster?
The worst investment outcomes are caused by an old ally: fear. Fear is hard wired into our brains. Fear protected us from being eaten. We attribute probability to wildly improbable scenarios based on fear. In the investment world, fear can lead you to disinvest at the wrong time or stop you from investing at all, causing perpetual paralysis. Fear is the financial equivalent of shooting yourself in the foot.
Fear of the unknown has been and continues to be a far greater cost to many investors than the market drops they seek to avoid, especially now, with inflation rates soaring around the world. This is one of the many reasons why advice should be sought. You need to know how much risk you must take to meet your own personal goals and how much risk you can afford to take so as not to compromise your lifestyle. This is far more important than short-term market forecasting.
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Clients of Nedbank Private Wealth can get in touch with their private banker directly to understand how we manage money, or call +44 (0)1624 645000 to speak to our client services team.
If you would like to find out more about how we can help clients manage their investments, please contact us on the same number as above, or complete a form using the links towards the end of the page.
Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rates also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned may be included in clients’
portfolios. They are referred to for information only and are not intended as a recommendation, not least as they may not be suitable. You should always seek professional advice before making any investment decisions.
Rebecca joined Nedbank Private Wealth in May 2004 having moved to the Isle of Man from Barcelona to pursue a course in Business Studies with the Isle of Man Business School. Rebecca was appointed to the role of investment counsellor in March 2019 to focus exclusively on the company’s discretionary investment management services.
She works closely with our teams of private bankers to provide support in advising our clients with integrity, and to give additional technical investment expertise where more complex portfolio requirements exist.
Rebecca is a Chartered Fellow of the Chartered Institute for Securities & Investment and a Chartered Wealth Manager.
Rebecca joined Nedbank Private Wealth in May 2004 having moved to the Isle of Man from Barcelona to pursue a course in Business Studies with the Isle of Man Business School. Rebecca was appointed to the role of investment counsellor in March 2019 to focus exclusively on the company’s discretionary investment management services.
She works closely with our teams of private bankers to provide support in advising our clients with integrity, and to give additional technical investment expertise where more complex portfolio requirements exist.
Rebecca is a Chartered Fellow of the Chartered Institute for Securities & Investment and a Chartered Wealth Manager.
+44 (0)1624 645813
Nedbank Private Wealth manages mainly multi-asset portfolios, so our communications don’t tend to focus exclusively on one asset class. However, today we propose discussing equities. Why? Because when you consider the news headlines, and then consider equity markets, we appear to be living in a parallel universe.
Read moreThe news feed from the coronavirus is all consuming, and rightly so. A disease that was widely touted, just a couple of months ago, as ‘similar’ to influenza has infected millions and killed hundreds of thousands of people.
Read moreTwo major disasters have crossed paths and it seems that the only good news we read about these days relates to how the coronavirus pandemic is slowing down climate change. Otherwise the press is full of heart-breaking stories of loss, peppered with acts of kindness and a sense of us trying to pull together. No one can tell us with absolute certainty what the future looks like, or when this will end. It can feel like we are staring into the deep unknown.
Read moreOne of the first lessons you are taught when studying anything investment related is the role diversification plays. For my investment exams, I was taught a diversified portfolio consisted of around 20 stocks ‒ a mere nod to today’s view. Instead, your portfolios – if you are a client of Nedbank Private Wealth that is – are invested across thousands of companies.
Read moreAs we witnessed in our latest webinar (click here for the Q&A), investors are struggling to understand everything given the tsunami of news. Markets have begun to claw back losses in some areas, but there may well be more bad news ahead, before we see a sustained trend in positive headlines. So what’s next?
Read more“He allowed himself to be swayed by his conviction that human beings are not born once and for all on the day their mothers give birth to them, but that life obliges them over and over again to give birth to themselves.” ― Gabriel García Márquez, Love in the Time of Cholera
Read moreAs children, most of us were excited to visit a sweet shop – I definitely was. Dazzled by the bright display of shelf upon shelf of glass jars, there were sweets of every possible shape, colour and taste – all covered in sugar. Some coins lay in my hand, but which sweets would I choose?
Read moreToo often we believe clients sit in too much cash. We understand why people do this, but we think that too much can be an issue. How much do you really need?
Read moreWe are one of only a handful of wealth managers who use currency management as part of our investment approach. In this short 45-second video, we explain why.
Read moreInternational Women’s Day was on Sunday 8 March, a day that since 1910 has focused attention on women’s rights. The day – and the invitation to speak on the topic at the Institute of Directors on 6 March – prompted me to think through how much has changed for women in the last 110 years. While there are still challenges ahead, this is pivotal time for women.
Read moreAllie Kirk, private banker, speaks to Rebecca Cretney, one of our investment specialists, about the current market turbulence.
Read moreIf you are interested in becoming a client, please complete the form via the ‘become a client’ button below. Alternatively, if you are already a client, or if you have a question about how we help clients in particular circumstances, please use the ‘contact us’ button.
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