Month: August 2019

A new prime minister, European negotiations, uncertainty and mass speculation. The Markets have seen it all before!

Growth of a Pound Invested in the Dimensional UK Market Index January 1956 – December 2016*

What’s that old Chinese curse?…. “May you live in interesting times.”

Well they’re certainly interesting all right. The funny thing about that curse however is that no actual Chinese source has ever been produced. It’s another example of speculation, gossip and assumption working their way into our lives; and whilst these kinds of idle speculations prove to be great pastimes of us all, they can also be three of the most destructive influences on your long-term investment portfolio.

We’re getting closer to the end of the tunnel.

Whilst we hate uncertainty almost as much as the markets do, there seems to be some new movement in the world of politics. We now have a new prime minister in the form of Boris Johnson, along with a new cabinet. There will be new domestic and international relationships to smooth and cultivate; along with the attempted renegotiation of Brexit. With the future holding either a deal or no-deal exit, as well as the possibility of a general election.

And guess what?… The more things change the more they stay the same.

Whilst it’s fair to say that the markets don’t like change, if we look at the long-term performance of the markets in terms of the growth of £1 invested in the Dimensional Market Index from January 1956 through to December 2016; then we can see a much bigger picture emerging.

Obviously this is not suggestive of long-term market performance, based upon which political party command the majority in the House of Commons. But what it does show us however is, as far as the markets are concerned, it really doesn’t seem to matter who occupies Number 10 Downing Street. No matter how troubling, exciting or boring the World or the UK domestic scene is, the markets seem to just get on with things, suggesting that long-term growth is inevitable.

So the important point now, is not to sell long-term investments during these ‘wobbly times’. As the historical evidence seems to suggest that there is an on-going trend for growth despite moments of turmoil, like joining the Common Market in 1973 or the banking crisis of 2008.

What was it that Corporal Jones used to say?… “Don’t panic!”

And it’s really good advice!
It doesn’t really seem to matter who lives in number 10, or whether we are in out or shaken all about with regard to Europe. The economy and markets are robust and seem to be determined to grow in the long-term.

Bear in mind too that there have been recessions and wars during the 60 years the graph covers; so turbulence a plenty in the economy. But just like the aircraft whizzing you away for your holidays, turbulence a small part of the flight and the seasoned professionals on the flight deck and the ones serving your drinks are never fazed by it. As they understand that, no matter how disconcerting it is at the time, turbulence is just part of the journey that gets us to the destination we’ve been looking forward to arriving at.

So with all of that in mind, it’s probably not the right time to react hastily and make any significant changes to your long-term investment plans.

As always, if you have any questions regarding long-term investment planning, or any other aspect of your finances, then please call Bridgewater Financial Planning, where we will be delighted to help in anyway we can.

* For illustrative purposes only.
Dimensional indices use CRSP and Compustat data.
Past performance is not a guarantee of future results.
Index is not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual fund.