A grounding list for your investment nervous system

Every time financial market prices fall meaningfully, our genetic disposition can make it feel like we are experiencing it for the first time. The risk is that fear takes the wheel, logic hops in the boot, and carefully planned investment strategies are tossed out the window. Understandably, volatile conditions (especially where the playbook keeps changing overnight) tend to push us towards impulsive investment decisions, which can cause more harm than good. But just like a deep breath can reset your nervous system during moments of heightened angst, a thoughtful investment checklist can anchor your financial decisions when markets spiral into chaos.

Here’s your reminder to pause, reflect and respond (only when you need to) with intent. 

PAUSE: IF YOUR FINANCIAL PLANNING WAS DONE CORRECTLY, CHANGE NOTHING

Effective financial planning seeks to ensure that you are invested in portfolios appropriate for your willingness and ability to take risk. If this planning was done well, the best course of action during times of crisis is to maintain your current strategy without making any changes. There is no use trying to change engines mid-flight.

ASSESS: REVISIT YOUR OBJECTIVES AND TIME HORIZON

During times of market turbulence, a critical check involves reassessing your investment time horizon and investment objective which guides your willingness and ability to take risk. Taking a moment to do this should help inform your response to and digestion of significant market moves and how it impacts your long-term objectives.

Consider two distinct scenarios: Retirees drawing a regular income from their portfolios typically invest in a more conservative fund, which naturally buffers against extreme market fluctuations. In contrast, investors with decades ahead face a fundamentally different reality – their growth-oriented portfolios may show deeper temporary losses. Still, these same market downturns create valuable buying opportunities. When quality assets trade at discounted prices, long-term investors should recognise this volatility not as a threat to their portfolio but as the very opportunity that can generate superior returns over time.

RESPOND WITH INTENT: RESIST THE TEMPTATION TO DERISK

The number one risk during periods of market crisis is that investors get tempted into derisking their portfolios. This is because when markets fall, investors fear more downside. And yet, history shows that panic selling once can destroy years of good decision-making in seconds. Beyond every crash, there is a comeback. And you don't want to miss the recovery due to poor timing (selling low and buying high).

The only exception to avoid derisking amidst a crisis, we would argue, is when your investment portfolio positioning is not consistent with your willingness and ability to take risk in the first place. Here, we believe that, regardless of the potential opportunity costs, and with the assistance of your adviser, you need to consider derisking your portfolio to appropriate levels to avoid getting into even more trouble later on.

IT'S OUR JOB TO TAKE ACTION

Having navigated multiple periods of significant market dislocation over the past three decades means that moments like these energise investment businesses with a long-term, valuation-driven focus. When assets get sold off indiscriminately, we look towards our own well-rehearsed and well-practised checklists (research process and philosophy) that enable us:

• To make asset allocation calls swiftly and with conviction on our investors' behalf; and
• To take advantage of the best opportunities, often by improving the overall quality of companies held in our portfolios (rotating into high-quality companies when they trade at much lower prices).

In every single major crisis before, whether you think back to the Global Financial Crisis (2008), Covid (2020), the Polycrisis (2022), the Dotcom bust (2000) or even 9/11 (2001), there was a moment where you had to have made an allocation call in favour of increased risk assets exposure to benefit from the bargain prices that were available at the time. And often these moments are short-lived; the Covid buying opportunity lasted only two weeks before markets started reaching new highs!

WHILE YOU GROUND, WE NAVIGATE

We understand how difficult it is to ground your nervous system when markets are erratic and you operate with limited useful information despite the abundance of news flow. Our experience through multiple market cycles has equipped us with both the perspective and proven processes needed to act decisively when emotions run high. 

When you feel the urge to react, remember that we're already responding on your behalf – not with panic, but with intent. Our commitment, as always, is to look through the noise and to follow a robust assessment of where there is opportunity. This allows us to position your investments to capture the often swift and substantial recovery that follows in a risk-conscious manner.

Markets don't reward panic; they reward patience, discipline and focus –principles we maintain on your behalf, especially when it is most difficult to do so.

 Insights Disclaimer