Bull vs Bear – Dealing with market volatility

User Written by Joseph Regan on February 01, 2016.

Bull vs Bear – Dealing with market volatility

The financial headlines are pretty frightening at the moment. Here’s a couple of scaremongering ones from the press this month:

CNN Money: Sell everything! 2016 will be a 'cataclysmic year,' warns RBS

Fortune: Here comes the biggest stock market crash in a generation

The Telegraph: Has the stock market reached tipping point?

Financial Times: Global assets shaken by China market turmoil

The double digit gains that the markets experienced three years in a row from 2012 to 2014 are over (for now) and analysts fear we are entering a bear market. The downturn is largely being driven by the economic situation in China, political instability in various countries, and the fall in oil prices. China may be the country grabbing the most headlines, but many of the world’s economies are facing some difficult challenges which are impacting international markets.

Are you one of these rattled investors wondering what to do?

Are you panicking and screaming “I need to sell it all”?

While it is natural to be concerned, I have one piece of advice for you – keep calm and don’t panic! The current downturn is a natural occurrence in the economic cycle, as this graph of eight world stock markets over the last 25 years illustrates.

Performance over 25 years in selective stock markets

Performance of 25 years in selective stock markets

There have been more than a few peaks and troughs along the way: the years 2001, 2008 and possibly 2016 are obviously down years. But as you can see, stocks have clearly risen over the long term. With this bit of hindsight, you most certainly would have kept your money invested or, perhaps, even invested more during the stagnant years. Anyone who invested with professional advice over the past decades is much richer these days, provided they stayed calm and rode out the storms.

Picture yourself in the year 2030, 2040 or 2050 – will you be looking back on this day kicking yourself because you sold everything? Or will you be enjoying your retirement to the fullest laughing at your peers who got out when things got tough? I know which person I’ll be.

Yes, I’ve lost money in my investments over the past few months just like everyone else. But since the beginning of my investment career my total value is well up since I’ve never pulled out during the bearish years. These days I’m certainly not selling and, in some cases, I’m buying! I feel like it’s Christmas with so many low priced funds just waiting to be bought. I certainly wouldn’t recommend anything to my clients that I wouldn’t do myself.

For expats working in China and earning in RMB the situation is a little more complicated. It is true that you are losing money in real terms as a result of currency devaluation. However, to turn a negative into a positive, you can kill two birds with one stone by using this opportunity to get your RMB into another more stable currency – which will preserve your salary against RMB devaluation – and simultaneously make money through investing.

Lastly, with so much negative press out there, let’s not forget what the experts are saying. Below are some of the most famous quotes perhaps the greatest investor of all time – Warren Buffet

‘The stock market is a device for transferring money from the impatient to the patient’

‘In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497’

‘Someone is sitting in the shade today because they planted a tree a long time ago’

‘Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it’

Feel free to contact me for free investment advice, I’m sure I can help. My email address is jregan@infinitysolutions.com.

Joseph Regan

Joseph Regan

Posted on February 01, 2016 in Investments.