Headlines, Fear and Reassurance
And it looks like we are in for stormy weather
With pain and destruction coming through
Oh, look out there she blows
Now everybody knows
Stormy weather always makes me think of you
The dramatic events in the global investment markets of the last few days make for startling headlines. Pause and consider for a moment that today’s news is tomorrow’s fish and chip paper. If the news that the media continues to present for your consumption makes you feel anxious, the simple answer is to turn it off, stop listening or reading and go for a walk outside in the sunshine … live, love and enjoy life.
Has the turmoil in the capital markets reached another phase? Yes, it has. Access to new capital by financial companies has been shut off, which has for some institutions reduced a vital source of strength that permitted many to remain viable. Whilst it has turned out badly for some institutions that have been caught up in this turmoil, others will benefit as the financial industry consolidates its position. Potential beneficiaries will increase market share and improve their own profitability. Keep in mind that many of the potential beneficiaries are important investments held in many diversified portfolios of most fund managers.
Like a sailboat righting itself when an ill wind catches it and tumbles it over; righting the economy will take time, but gain reassurance that many necessary things have begun to happen for this to occur.
As provocative as recent headline’s may seem, they are not unique. History provides lessons that a well-known financial institution failing during volatile markets is not uncommon. The banking and financial sector have generally emerged from previous down cycles stronger and far more profitable than at any time before.
Bad things can and do happen. Sometimes these things are foreseeable … sometimes not. If anything, the current market events reinforce the ongoing need for a portfolio strategy to be implemented which is not dependent on any one stock, sector, country and/or asset class.
Researchers and commentators suggest, the global economy is still growing, perhaps now at a pace more in keeping with its capacity to grow. Some pressure has been relieved on resources (like oil, grains and industrial commodities) that had become so intense. Balance sheets of most financial companies are strong despite recent losses. The balance sheets of non-financial companies are in the best shape they have been in many years, owing to the more cautious use of cash flow during the last expansionary phase – a pattern that extends around the globe. But right now it doesn’t fell if this strength is present. The air is thick with fear and anxiety.
Bernstein and Seigel (in their book, “Stocks for the Long Run”) repeated stated Fear has a greater grasp on human action than does the impressive weight of historical evidence. If you don’t give in to fear, it is likely you won’t sell your portfolio at times like we are currently experiencing. Failing to sell, you will likely remain invested in a well diversified portfolio for the long run and experience the joy that building real wealth provides.
Let’s return to the startling headlines of recent days. The only thing we have to fear is fear itself. No one is expecting you not to feel fear, because there are very few of us that are emotionless robots. You have to be who you are and feel what you feel. You simply have to refuse to act on that feeling … and that is where the value of your Financial Advisor can become evident.
You shouldn’t engage a Financial Advisor to tell you if Fund X will outperform Fund Y over the next 3 years (they wouldn’t know and neither does anyone else). You most assuredly don’t hire them to predict the markets, economy cycles, or what interest rates will do next (again … they don’t know and nor does anyone else). You hire an advisor to help you achieve wealth that you believe you mightn’t achieve on your own.
If creating, protecting and ensuring succession of wealth is a by product of implementing an appropriate financial plan, and if giving in to fear is one of the greatest obstacles to success in creating wealth with your plan; then the highest and best function of your financial advisor may simply be in convincing you not to lose faith in your plan. In context of the current markets turmoil, this may be in encouragement to not lose faith in the investments you have used to implement your appropriate financial plans strategies – and not to sell.
I can see clearly now, the rain is gone,
I can see all obstacles in my way
Gone are the dark clouds that had me blind
It’s gonna be a bright (bright), bright (bright)
Sun-Shiny day
It’s gonna be a bright (bright), bright (bright)
Sun-Shiny day