I am getting more and more frustrated with the gloom and doom being espoused in all circles financial, whether involving the recent turmoil in world stockmarkets or the long awaited housing correction.
I say correction rather than crash because we can’t expect 10-20% compound annual growth from property, or indeed any other asset class for that matter, on any kind of medium or long-term basis.
We are now potentially entering a bear market, which is defined as a prolonged period in which share prices fall, accompanied by widespread pessimism. Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly. Alternatively, if the period of falling stock prices is short and immediately follows a period of rising stock prices, it is called a correction.
The ‘feel good’ factor of 2004-2007 has been replaced by the feel bad factor of 2008, with rising oil prices, close to 4% inflation, the credit crunch ruining mortgage liquidity (particularly for first time buyers), cash calls from banks and the looming spectre of rising unemployment. The combined effect of this has seen advisers and their clients running for cover, stagnation in the housing and associated mortgage industry and volatile world stock markets.
The pervading negative themes are creating that friend or foe of the markets - sentiment, and a boulder of uncertainty running downhill and gathering pace. On the positive side there is no empirical evidence to suggest that this is either a short-term correction or longer-term period of uncertainty and stock markets often rise as fast as they fall.
The shrewd investment manager will tell you that market-timing doesn’t work, and it is ‘time-in’ the market which is the important facet. If the FTSE had continued its rise to 7000+, then you can be assured that investors would have been piling in with great confidence, my point being that there is likely to be value at buying in at current levels. For example, banks have been oversold and have already rebounded significantly from recent levels.
The power of a positive mental attitude can help allay client’s fears and remind them that they are investing for the long term. If you are still sceptical about the markets, then why not drip feed money in and benefit from pound cost averaging. And, if there is a lull in your business, remember it is a good time to plan for future success: segment your client base, seek to get more from your computer system or overhaul your investment process to maximise recurring revenue streams.
Colin Sloss is head of account management & Sales at 1st – The Exchange, Vertex companies.
The comments expressed are those of the individual and not necessarily those of the company they represent.
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From 6 April 2019