Raymond Mulligan: Adjust tactics to counter market mayhem
Published 03/11/2008 | 14:56
Question: The current economic mayhem is concerning me. I really don’t know what to do or where to turn to regarding my planning. What do you suggest?
Answer: I think the word ‘mayhem’ encapsulates so much of what is happening at the minute. The world stock markets have come under incredible pressure in recent weeks, registering record falls and taking the levels back to where they began many years ago.
The initial problems created by the credit crunch 12 months previously have spread further and as the western world and beyond looks to the likelihood of a prolonged recession, markets continue to struggle to see a positive outcome.
Usually in times of stock market volatility, other assets such as property and cash benefit, as investors flee equities for the safe ground of other asset classes.
What is unique in this situation is that all assets are coming under pressure. We all know what is happening to property prices locally and further a field, and the belief of cash being the ultimate safe haven has been rocked to the core. It is at times like these that your personal financial planning needs to be carefully addressed. One option that no one should contemplate at the minute is to bury their head in the sand and pretend it is going to go away.
People need to go back to their key planning objectives and then examine what is in place to achieve those goals. In doing so, careful examination needs to be undertaken of that existing strategy to see how it is weathering against the current storm.
At the minute, no one can predict what is going to happen in the coming weeks and months. The current conditions have caught even the world’s top investment gurus unawares so anyone who claims to tell you with any degree of certainty, when we have reached the bottom of the current cycle, is simply involved in wild speculation.
By looking to try and time the markets in investment terms, is not what putting together a carefully thought through strategy is all about. Timing should be left to the speculators who are in to try and make a quick killing but who are equally prepared to accept huge losses.
Any long-term strategy should be based upon the key investment principles of diversification, which in essence means you have a good spread of assets from cash to shares.
Ensure that you fully understand the arrangements you have entered into and they are among the best available in the market.
Your participation in these investments should be through respected fund managers who have built up a consistent reputation in all markets.
So to summarise, my advice would be not to get involved in knee jerk reactions to what is happening around us at this point.
The public are renowned for buying in at peaks and selling out at the bottom, the reverse is what people should be striving to achieve. But in all of this mayhem, carefully review what you have in place and if necessary make some tactical adjustments to your strategy. Remember, it is this long term approach that you should continually focus upon.