Our first article reviewed the ordinariness of market volatility and some of the facts around timing the market. The emotional aspects of investing are reviewed in this second article along with benefits of a capitalist market.
Unwavering faith in capitalism – a prosperous economic model
It is easy to become accustomed to and underweight the amazing progress global societies have made over the past century. Let’s remind ourselves of the remarkable, persistent and robust wealth creation of global capitalism. Although in extremis, capitalism can be divisive, cruel and abused, it is a remarkable economic system that has delivered astounding results, in terms of innovation, reduction of global poverty, as well as increased human longevity and birth rates. Despite all the doom and gloom peddled by market commentators, wealth creation is remarkably robust over time (see UK GDP growth below). This is good news for disciplined, long term equity investors, as they are part owners in the great companies of the world which continue to innovate and contribute to long term global economic growth.
Data source: Office for National Statistics (ONS, 2019).
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Helping ourselves – keeping our emotions in check
- If you can’t help yourself from being concerned, perhaps work your way through the following mental checklist when markets fall:
- Do you need access to the money invested today, or even in the next 5 years?
- Is this short-term market fall a surprise to you?
- Has capitalism ceased to be a driver of global growth and wealth creation?
- Is the global economy shrinking?
- Is it a good thing to sell equities when they have fallen?
- Do you think that the market will be below where it is today in 10 years’ time?
- Do ordinary patterns of returns warrant extraordinary actions?
If the answer to most of these questions is ‘no’, then try to stop worrying.
Try not to look too often at the value of your portfolio, stop listening to the hyperbole of the mainstream media and stop dwelling on the news. Yet, do be optimistic about the power of the wealth creation potential of global capitalism over the time frame you will be invested.
The wise course of action is to review your unique financial plan and decide if any action is indeed necessary. This placates the natural desire to ‘do something’, but helps keep emotions in check.
One of the most effective traits of successful lifetime investors is discipline. Short term market volatility is nothing unexpected – it’s all part of the long-term plan. Stick to the program.
This article has been published for educational purposes only and should not be considered investment advice or an offer of any product for sale. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.
