Brexit just keeps on dominating the political agenda. How should millennials, experiencing their first economic wobble as investors, react? Should we play safe – or be in it to win it? I take a look at my own portfolio to see whether it has affected my investment decisions – and ask what attitude young people should adopt in these uncertain AF times…
Are you a remainer or leaver…
…in the stock market?
Dont’ worry, this blog is largely a Brexit-free zone. My reasoning is that we haven’t actually left yet and the knock-on effects for our everyday personal finances have (not yet) been felt.
But the referendum outcome in 2016 was always going to reverberate through our investment and political portfolios – even if we ended up reversing the decision (not outside the realms of possibility). So where are we at today?
Let’s rewind ala Craig David to that politically crunchy time late last year, when it seemed our entire constitution was falling down around our ears. UK shares a bit depressed and the FTSE-100 hovering around 7000 after starting the year above 7600.
It was around this time that investors were asked by The Share Centre (a DIY investment platform) where the index would be today.
Over a fifth believed it would be five to 10 per cent lower, and another fifth thought it would be 0 to five per cent lower or 10 to 15 per cent lower.
So almost half had convinced themselves to stay out of the market, or sell, or generally hide under the bedclothes. That’s because they believed that the FTSE-100 would be somewhere down below 6700 by April this year.
The FTSE-100 is actually heading towards 7500, some six per cent higher than back in November and 11 per cent up since the start of 2019.
The moral of the story is that markets (or rather the investors that propel them) continue to be as unpredictable and maddening from a short-term perspective as they always have been. The same worries that kept investors awake in late 2018 still cause us to reach for the Nytol (or maybe something stronger, for some…)
This is known as markets climbing the wall of worry and has always been a feature of investing. So if you’re starting to ask yourself “is this the right or wrong time to invest?”, maybe you’re asking the wrong question.
The better thought is…”when IS a good time to start investing for the long-term?”
Reality check klaxon
Yes, stock markets have been generally heading up since the crash, which means we have had a 10-year ‘bull market’.
Yes, the world is groaning with debt, Trump’s trade wars are unnerving, Europe is battling recession, Brexit is a hot mess, and technically there are signs in the bond markets that shares could be heading for a fall.
But no, there is no sure signal for when a bull market turns back and becomes an apparent bear market (a fall of 20%) let alone a sustained one. And bull markets don’t die of old age, the market saying goes, they need something to kill them off (even when they seem well and truly clapped out).
And no, the pundits have no better idea than you do about what will actually happen, and those who predict a bear market could be wrong for a very long time before they are right.
Take summer 2016, just after the Brexit referendum. Nobody was saying so at the time – including me! – but that now looks like a brilliant time to have been investing. Perhaps because I knew most young people around me were practically in a state of grief, and so it *might* have seemed a tad insensitive to remind them that the result could, in fact, help them make a killing.
I’ll let you into my secret (investment) world
But since that period, I’ve been trying to take advantage. I was building up modest savings and picking a few investment trusts for a stocks and shares Isa.
Now before I discuss my investment picks, I want to preface my remarks with two big qualifiers. Firstly, I am not a financial adviser. My circs are strictly my circs, and my risk appetite may be wildly different from your own. Becoming a mature investor on your own is partly understanding that you can’t always take other people’s ideas off the hook like an H&M party dress, try them on and think “Sorted! Now, where are the vol-au-vents?” You’ve got to find your own way to investing – what works for you, based on how much time, money and appetite you have for risk versus reward.
It’s one reason I haven’t been confessing all in the past three years like some tear-stained vlogger. Which brings me onto my second qualifier. I cannot abide the get rich quick school of internet content (for it certainly isn’t journalism) which pretends that investing will shower you with cash in a matter of months, if only if you sign up to some online “course” about crypto or trading. My investment approach is about as far removed from that as Miley Cyrus is from Mary Berry.
I will return to this subject but for now, on with my recent investment thinking.
I got lucky and cashed out for a car…
When my hopeful picks such as the Scottish Mortgage and Shin Nippon investment trusts – run by Edinburgh’s own Baillie Gifford – did stonkingly well, I sort of guessed it wasn’t because I was a brilliant strategist but because I had got lucky. When I happened to need some cash for a car, I was happy with a big profit and sold them.
…but I’ve had to sit tight on UK equity, emerging markets and China
I also picked two highly-regarded UK equity income trusts: Lowland which invests in smaller companies, and Temple Bar. One is down, one is up.
Last year I hit on JP Morgan Emerging Markets Income, which crashed then recovered to where I had bought it. The same happened with Fidelity China Special Situations, which is now well ahead of where I went in. I’m learning how to be patient and not expect early profits but drip-invest and practice what I preach. I mention all this because it shows I was at least trying for some diversification, with my half a dozen trusts covering global (led by US), Japan, UK, emerging markets and China, and spanning both larger and smaller companies, growth and income. It makes fretting about Brexit seem a bit parochial.
What did I learn?
📈There is no ‘perfect’ time to put money into the stock market, or to withdraw it in anticipation of market falls. Over the shorter-term, it’s more about luck than anything else, and you should beware false confidence. If a bear market does growl into view (grrrrr!) the good news is that as long as you still have money to keep saving, you will get the benefit of lower prices. The danger of being too cute and staying out is that you will keep more in cash than you really need to. Remember, the whole point of investing is to use money that can grow itself in the long-term.
It’s only by being and staying invested that you will have any hope of matching those impressive returns that are quoted in stock market stats.
📈Although you will never know the perfect time, it’s also true that your return on any holding will depend ultimately on the price you buy at. You don’t ideally want to jump in with an almighty one-off investment at what turns out to be the new 1999, or even the new 2008 (nobody knew at the time things would bounce back so dramatically, so quickly).
If you jump in when the market is buoyant and everybody is optimistic, it’s all the more likely that you are buying in to your chosen investment at a level that will make strong returns, at least over the medium term, harder to bank. A big setback, moreover, in the midst of a big crisis, can be unnerving and make you liable to sell when the price falls and be unsure when, if at all, to re-enter the market.
📈Fund managers would love you to go all-in but it pays to drip-feed instead. Every year at this time, the fund management industry publishes a torrent of so-called surveys and reports which are a thinly-disguised call to pile in, right here right now, come what may, because timing doesn’t matter. All that matters is to be in the market.
Better advice – which, to be fair, they also dispense here and there – is to be a ‘drip-feed’ investor. If, for instance, you set up a monthly savings plan with an investment trust company, you can not only use it to keep your savings discipline but gain another benefit: you will be buying your investment each month at a different price, which automatically protects you against bad timing.
So remember that whatever the current crop of political worries and market scares, short-term movements in markets rarely matter in the grand scheme of things. While it’s never certain that you’ll get back what you put in, anything other than a dreadfully-timed investment for the long-term (at least five years) should achieve a return – and a better one than you could get on cash if history is anything to go by. This is particularly true at a time of low interest rates and stubborn inflation.
But there are some nailed-on sensible rules to bear in mind if you want to maximise your chances of bulking up returns. Here are eight things to think about when investing:
Suss out how long you’ll be investing so you can get your ‘asset mix’ down pat.
If you are only investing for five years, ensure your portfolio leans more towards lower-risk investments like government and good quality corporate bonds, or so-called “defensive” investments in sectors that tend to do alright regardless of the economic outlook. An investment time-frame of 10 years or more is an invitation to take bigger risks, as you’ll surf the waves of the stock market and take advantage of bigger gains on more volatile investments.
Have a plan as to why you’re investing and stick to it.
Once you’ve decided the right assets and strategy to achieve your goals, stick to the plan unless your life materially changes. (No, that doesn’t mean going vegan or getting a Beyonce quote as a tattoo.)
Drip-feeding your money into markets each month dodges the wipe-outs and allows you to surf the waves.
Build up a case for any investment you like, and review it according to whether the fundamentals have changed, before being swayed into trading decisions to buy more, or sell.
Diversification is your balance, man…
Like having one wild child and one bookworm to balance out your squad. It may be tempting to pile into one investment prospect if you think they’ll shoot the lights out, but companies (and even countries) can end up doing unexpected things.
…but don’t spread yourself too thinly.
Studies have shown that having too many holdings results in lower returns and you end up spreading your gains thinly by having too many funds.
Don’t wait to be saved by the bell!
Don’t be afraid to sell your winners if you are looking at a healthy profit and don’t obsess about how much more you could have made if you held on for longer. As the saying goes, markets don’t ring a bell when they reach the top. Anita Baker would be disappointed (classic disco reference there…oh come on!)
Occasionally you may need to cut losers.
Harsh but true. It’s tempting to hold on for far too long in the hope that things will turn around. But a successful investor can act quickly to rebalance the portfolio and take advantage of more promising opportunities.
Don’t get too dazzled by rockstar fund managers and their investing tips.
P.S. This is not Neil Woodford. If only.
Some like Neil Woodford are big names for a reason – yes, I know he isn’t Lady Gaga, but he’s a hotshot in investing, alright? – and yet even the most experienced investors get things wrong. That’s why it’s important not to buy into one or two investment stories, however credible they may seem.