Don’t worry, be happy.
There is a lot of worrying going on in the financial and investment worlds at the moment. This has led to a good deal of market volatility.
Investors have been worried, first by the Greek bailout stand-off, then by the China crisis and latterly by the VW situation.
Central bankers are worried about what to do with interest rates. In the US, the Fed held off from raising interest rates last month, due to concerns over the global economy amongst other things. With interest rates so low and with quantitative easing (QE) at record levels, the worry for Central Banks around the world is what to do if there is another downturn.
Yet are all the worries being overplayed? An interesting article by David Smith, in last week’s Sunday Times Business News, seemed to suggest that all the worries are being overdone. He pointed out that ‘the economic news is good, particularly in Britain. Growth has decent momentum, zero inflation is bringing strong gains in real wages, business investment is rising, and consumer and business confidence are high. There are even signs of a revival in productivity.’
He goes on to point out that the Office for National Statistics (ONS) has revised its figures to show that we grew much faster than previously thought over the last four years. He also mentions the latest Citigroup forecast for global growth, which suggests a downgrade but only a small one, from 3.5% per annum to 3.2% for the next four years. So whatever the Chinese situation, it may not impact upon global growth as much as feared. He also mentions that the car industry in Germany only accounts for 2.7% of German GDP, so any fallout with VW will not have a seismic effect on its economy.
So what does this all mean for investors? Markets don’t like uncertainty, and we certainly have that in spades. But as history shows, investing in stockmarkets long-term almost always pays dividends.
Another article in the Sunday Times, by Ali Hussain, makes that very point. It shows that in the 30 years since October 1985, the FTSE 100 has risen more than fourfold, from 1377 to 6129 (today’s closing figure), and that regular investors over that period would have been three times better off tracking the FTSE100 than investing in cash.
For investors therefore, the right response is not to worry but to be, if not happy, then focused. Draw up your long-term financial strategy and stick to it. Diversification helps, as does good financial advice.
To discuss your financial planning needs, contact Kellands today.