Uncertainty Abounds

Today, it certainly feels like the world is in a very uncertain place. Authoritarian states are flexing their muscles, with the Russian army sitting poised on the Ukrainian border and China’s ongoing subjugation of Hong Kong with the new National Security Law as cases in point.

The West continues to struggle with what is hopefully the back end of the Covid crisis as populations gather immunity through vaccination and infection, and as new drugs and treatments come online almost daily.  Economically, the greatest challenge is soaring inflation, hitting levels not seen for several decades.  Consequently, interest rates and yields on bonds have started to rise and global equity markets have started the year down.  That can all feel both gloomy and unsettling.

It is always easy to feel that the present is more uncertain than the past.  Most of us will have all but forgotten the Armageddon scenarios of events such as the Y2K software bug issues of 2000 (planes expected to fall out of the sky, nuclear power stations to be out of control etc.), the emotional and geopolitical impact of 9/11, or the fear many felt in 2008 when Lehman Brothers failed and the meltdown of the financial system was a real risk.

The chart below illustrates that over the medium to long term the markets absorb the consequences of such events and powers forward as capitalism drives the relentless pursuit of profit opportunities. Being shaken out of markets based on today’s news is about the worst mistake any long-term investor can make.


Figure 1:  Material global event are ever present

Data source: Vanguard Global Stock Index ACC, 4/8/1998 to 14/2/2022 in GBP used as proxy for the performance of global equities.

Its use in this chart does not constitute any form of recommendation and is provided for educational purposes only.


What is to be done?


The short answer is ‘not much’. As ever, all the news that we see and worry about – including a possible invasion of Ukraine by Russia – is already reflected in market prices. For sure, new news will have an influence on those prices, but by its very definition this is a random process that is hard to benefit from unless you own a crystal ball.

In terms of direct portfolio exposure, it is worth noting that Russia represents between 0.13% and 0.36% of global equity markets exposure within our portfolios, and that is before this is diluted down in any portfolio by bond holdings. To put this in perspective, our portfolio exposure to Apple is between 0.54% and 2.45%! In fact, Apple’s cash reserves alone are of a broadly similar magnitude to Russia’s entire market capitalisation.

No-one has any real idea as to the wider impact of a Russian invasion, but even if it happens, and even if markets fall, the following are some areas to remember:


  • As part of our review meetings, we review, discuss and demonstrate that markets fluctuate and indeed do go down. Feeling uncertain about markets is not a valid reason for seeking to get out of markets and could be detrimental to your life and financial plans and is why we continually keep this under review with you.


  • As part of your Financial Plan and your immediate objectives, where it is anticipated that you will require liquid funds in the short term, we should have made some provision for these by placing funds in cash already. This approach helps avoid reducing your equity position at a time where it may not be advisable from an investment perspective.


  • We invest in high-quality bonds as they provide several valuable attributes. They provide more stable values, supporting a portfolio against equity market falls; liquidity to meet any liabilities without having to sell equities when they are down; and the dry powder to rebalance the portfolio and buy more equities when they have fallen to get the portfolio back up to the right level of risk.


It’s virtually impossible to avoid the news, you may get a notification on your phone or tablet, hear something on the television or radio or overhear a conversation. Of course, the headlines can be unsettling from a human aspect, but as mentioned above, by the time we hear about it, it is likely to already be factored into market prices.

Whilst it is easier said then done, try to not allow those worries to impact on your investment views, which could have a detrimental implication on your portfolios. Try and sit tight, and remember, we are always here to offer support and guidance.


Investment Risk Warnings

Please remember the value of your investments and any income from them can go down as well as up and you may get back less than the amount you originally invested.  All investments carry an element of risk which may differ significantly.

If you are unsure as to the suitability of any particular investment or product, you should seek professional financial advice.   Tax rules may change in the future and taxation will depend on your personal circumstances. Charges may be subject to change in the future.

For each of the portfolios we recommend we are able to demonstrate, using back tested simulated data, the historic returns, the anticipated future returns (allowing for inflation) and the historic downsides (including the worst-case scenario that would have been experienced had you been invested throughout the data period), over a variety of time periods.

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