Dealing with times of turbulence

The recent falls in global stock markets in reaction to the unknown consequences of the spread of the Coronavirus is a concern to most investors. However it is likely to be a greater concern to newer investors who haven’t been through something similar before. It’s at times like this we remind ourselves, and those we partner with, that there are things we can control and things we can’t control.

A phrase we sometimes use in conversations with investors to explain what we do at iPlanning is that we are planners not players. Our strategy always is to have a financial plan and only make changes to the plan if goals and objectives change.

One of the practices we often employ during our review meetings is to have a financial stress test. This is when we check three risk factors in the light of a potential overnight stock market drop of drop of 20%. The three questions we ask are:

  • Are your investment objectives impacted?
  • Is your ability to fund your month by month desired standard of living affected?
  • Is your access to cash in an emergency compromised?

As far as we are aware every client has passed the stress test when those criteria were applied. This is good news and sticking to the plan in place is the best plan.

However there is one test that is harder to assess during our review meetings and that is the ‘risk tolerance’ test. This is when we ask how would you cope if the investment waters got very choppy?

The answer to this question is often linked to how long you have been an investor and what kind of temperament you have. This is when some of you need to have a chat about perspective and a discussion on why ‘panic’ is not an answer!

Those of you who have been invested for a long time know that these times of turbulence have happened before on your journey and that they do pass. None of us like turbulence but on a long flight there is an inevitability about it and we fasten our seat-belts.

Our encouragement to you is that you stick with the plan we have in place for you and tighten your seat belts. If you want to meet because you are loosing perspective or have any other concerns then all you need do is arrange a meeting with one of us.

Disclaimer: The views expressed in this post are those of the author only and are not necessarily those of I Planning Wealth Management Ltd. All material in this post should be considered as general information only and should in no way be construed as a recommendation of a specific product or course of action. Each circumstance is different and professional advice tailored to your circumstances should be sought from a qualified financial adviser.

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