As stocks of tinned tomatoes and loo roll tumble off the supermarket shelves and pile up in people’s store cupboards, financial stocks are simply tumbling
Looking for some light relief
If I can get this blog written before my next bout of teeth-grinding, floor-pacing, hand-wringing (and washing) ineffectual worrying is due, I’ll consider this a good day. Somewhat weirded out by the hourly emails informing of the shut-down of just about everything – not to mention the total lack of flour and tinned tomatoes on the supermarket shelves – I’ve decided to think about stock markets and investments for some light relief.
Flirting with a nice whole number
At the time of writing (oh when was that sentence ever so necessary?), the FTSE 100 (the price index of the top 100 companies listed in the UK) has been flirting with the 5000 mark and has now settled a bit more convincingly underneath it. Yes, I really did just write that. It’s the kind of thing professional financial types say all the time. They fixate on specific whole numbers as being significant – as if the index itself is intentionally sending the world a signal when it drops a point from 5000 to 4999. And they like to personify the market as if it were a law unto itself and not a product of their actions. “Markets are jittery”, “The markets have taken fright” and other such observations all lend to the notion that ‘the markets’ know what is going to happen before the rest of us.
Which simply isn’t true.
Falling fund values are not a good look
The types of falls in the value of stock markets that we have seen (that number of 5000 that I mentioned above was 7500 a month ago) are caused by a combination of factors, some of which – like the very real prospect that some big employers could go out of business – might prove to be wholly justified. But others are harder to judge. One such is that professional fund managers with minute-by-minute calculations of the value of their investments on their quadruple screens are unsurprisingly very concerned with their short-term performance. Being in charge of a fund that keeps going down in value is not a good look if your job is to keep the value going up. They look at the news and see that things might be iffy for a while and sell like crazy so as to be ahead of the game. And so, the prices of the stocks in the markets tumble because everyone is selling them. And then, the managers declare that “markets don’t like uncertainty’ or ‘the markets are taking a dive”. Hmm.
The wrong kind of stockpiling
This is like me going to the supermarket and putting an extra ten tins of chick peas in my trolley only to comment in an incredulous voice later that “the supermarket shelves are emptying themselves”. I can’t help wondering if the wrong kind of stockpiling is going on here.
Caught short with no loo roll: a risky business
If you’re the kind of person who is nervous of getting caught with your pants down and no loo roll, then I would hasten to guess that investing in stocks and shares right now is not going to be top of your to-do list. And just as stock-piling non-perishable goods in the supermarket is a knee-jerk reaction to a situation that is making us all nervous, the movers and shakers of the stock markets are also jerking their knees. Shares in every business that is directly or indirectly affected by the virus outbreak are being sold – or the share price marked down – because nobody knows whether that business will survive or not. We are all going into self-preservation mode and acting in ways we wouldn’t normally dream of. It’s a risky business.
Vindication of a risk-averse approach?
Investing involves risk – that’s a given. How we feel about this risk is central to how we feel about investing and is exactly what I am trying to tackle in my blogs and workshops for women. Many of the women I have been speaking to are self-confessed play-it-safe types who struggle with the idea of taking risks with hard-earned money. The rationale behind the Talking Finances With Women initiative is to help us gain perspective on these risks and understand why many women remain investment-shy. A crisis of the order that we are seeing right now might feel like a vindication of the risk-averse approach and, in the heat of the moment, it can be tempting to turn our backs on this stock market malarkey and give it all up as a bad lot.
At some point, the market will improve
But although it feels a bit like the world as we know it is under threat right now, I keep reminding myself that the fundamental arguments in favour of investing for the long term remain. The markets are reacting (there’s that personification again) to negative news flow. At some point, the news flow will improve. Based on historical numbers going back well over 100 years*, investing money in shares for five years has given you a 75% chance of a better performance than leaving your money in cash. That improves to a 99% chance if you invested for a period of 18 years.
Yes, it’s statistics. And yes, these are historical numbers. But let us frame it another way. If you were someone who only ever invested in shares and never contemplated holding all your money in cash deposits, would you be tempted to switch your thinking if you were told that, based on these numbers, you had a 1% chance of a better return over an 18-year period? Or even a 25% chance over a five-year period?
Risks of investing have felt alien
I think it all comes down to what we are comfortable with and what ‘normal’ looks like. In the past, the majority of women have not had the additional resources to invest but have been tasked with the day-to-day budgeting. The risks of investing feel alien to them because their timescales have been short – monthly, weekly or even daily matching spending with income.
A conscious decision not to look at my statement
But if we are to provide adequately for our futures, we need to be thinking more long term. I have a stocks and shares ISA that I put a regular amount into each month. An online statement email came through yesterday and I made a conscious decision not to look at it – choosing instead to focus my mind on the additional amounts of shares that my monthly contribution will be buying in these falling markets. As and when the markets recover (they will – we just don’t know when), I will reap the benefits of the growth.
Piling up stocks for the long term
And whilst my stocks are busy piling up in my ISA in readiness for an eventual uplift – and I can be patient because I haven’t taken risks with money that I need in the short term – I am looking at our household stocks of loo roll and tomatoes and wondering what the risks of us running out are. I’ll get back to you on that…
*Barclays Equity Gilt Study 2016
All opinions expressed are those of Carole Haswell and do not constitute investment advice