Sound Financial Group Blog

This week’s blog tries to bring a little bit of sanity back into a mad world. The voice of reason reiterates that investors should not panic buy or sell, but have their portfolios managed and maintained based upon an investment objective, the investors risk profile and risk tolerance level

The author of this blog has returned from annual leave to find that the World has not quite gone mad, but is certainly foaming at the mouth and muttering to itself in the corner of a darkened room.

Debt contagion in Europe, plummeting equity markets, American politicians squabbling and taking the country to the brink of default and in the UK serious rioting, theft and disorder on the streets of some of its major cities. Oh and inflation is now back on the rise again and annuity rates that dictate pension income levels are falling again as bond prices rise. Just some of the midsummer madness that has descended upon us and tested our sanity over the past couple of weeks.

As far as investments and pension income is concerned, the media has made much of the ‘stock market roller coaster’ and ‘market mayhem’ and other such well used phrases that get wheeled out during times of equity market volatility.

As Financial Planners we never wish to make comments or predictions on ‘market direction’ or indeed position our client’s portfolios based upon our feelings as to where it is headed. Investors should never underestimate the ability of equity markets to confound their expectations and after the event ‘sages’ are always ready to tell you why they knew that what has just happened would happen.

Investment portfolios need to be managed and maintained based upon an investment objective, the investors risk profile, risk tolerance level, their expectations and then rebalanced accordingly. Not rebalanced based upon where the market may be heading in the short-term, but based upon the need to attempt to gain long-term equity growth and income returns without panicking out of the market when the going gets tough.

With a 60 year old male and a 60 year old female now having a 1 in 10 chance and 1 in 7 chance respectively of living to age 100, short-term market volatility (if managed appropriately) will have little long-term effect on what may be a 40 year rising income requirement. In any case the statistics tell us that on average a 60 year old couple will need that income requirement to be maintained for on average at least 30 years and there will be many fluctuations in investment markets along the way.

For those investors who do have concerns about the recent market volatility, another frequently used phrase may remind investors that falling equity prices do offer opportunities.

“Be greedy when others are fearful and fearful when others are greedy” – Warren Buffet.

If you wish to discuss your own investment planning strategy or would just like a second opinion on your current pension or investment arrangements, please contact us and take advantage of a no cost or obligation meeting.