Prepare for stormy weather
'May you live in interesting times', is an old Chinese curse.
So, people could be forgiven for thinking we're truly cursed at the moment with the world being beset by great political and economic uncertainty. Two of the world's biggest economies, the US and China, are engaged in the early stages of a trade war, Brexit is unresolved, Italy presents another threat to the EU and France is torn by civil unrest.
It might be argued that there's nothing new in all this and that the world is always prey to conflict, but what is unusual is that last summer marked the longest bull run of rising prices in the history of the US stock market. All good things usually come to an end and this duly occurred. The combination of political and economic uncertainty and an inevitable market correction means that markets around the world have fallen and at the time of writing, the FTSE 100 is down by roughly 14% in value from its summer height.
For some time we've been concerned about the state of the world's stock markets and so we've been steadily increasing the amount of cash held in our standard portfolios and we've also been increasing our holdings in property, which is less volatile then equities. We've also bought gold, which usually performs well in times of uncertainty and did rise value steeply in the closing months of 2018. As a result of these precautionary moves, our portfolios may have not increased in value, but they performed well compared to the markets last year.
In the meantime, clients should individually review their own attitudes to risk and their risk profiles. Markets could continue to fall and people should consider what value of their savings they can afford to lose before it starts to threaten their lifestyles. In normal times, when markets are growing, the number one driver for people is what risks they're prepared to take to maximise gains, but, when markets are in negative territory, it becomes more important to concentrate on the amount they are prepared to risk losing.
We make routine changes to our portfolios in anticipation of changing market conditions and we keep our clients informed of these through regular communications and gain authority from each client before making changes to their portfolio. At other times, when we feel it appropriate, we proactively contact clients to alert them to certain issues and clearly set out their options. At other times, we might telephone a client for a one-to-one personal discussion about their situation and we will perhaps come up with a bespoke solution for them.
Our role is to make people aware of issues and of the risks and opportunities, and to point to the potential impact that such issues might have on their lives.
We do indeed live in interesting times and savers have to recognise that and be aware that taking firstly, a greater interest in their financial affairs and secondly, certain actions if appropriate, might put them in a better informed and stronger position to achieve their aims and goals.
Given what we have discussed, if you have any concerns about the markets and want to discuss what this may mean to your portfolio in relation to your objectives then please do not hesitate to contact us.
It is important that no actions should be taken without first taking advice. Personal circumstances and an individual's appetite for risk means that the advice for one person may not be the same for everyone. The information in this blog or any response to comments should not be regarded as financial advice. This is based on our understanding in January 2019.