Global Economic Challenges
One of the world’s richest men, Warren Buffett, acquired his wealth by following a very simple rule during times of market volatility: “Be fearful when others are greedy, and be greedy when others are fearful.”
With the World’s stock markets pulling back in 2022 and the mass media news outlets and websites trumpeting the supply chain problems, the rising inflation, lingering economic effects of Covid-19, it is easy to lose sight of the big picture. Clients often call when markets are looking a bit shaky, or newspaper articles are predicting the next market correction, recession, bubble, etc.
The challenge with reacting to such events or news is that the external circumstances rarely have anything to do with your specific situation and plan. Your mission, should you choose to embrace it, is to build assets through savings and investment returns so that you reach your targeted savings value needed to support your lifestyle and cash flow needs in retirement.
Retirement is that far off land where you envision putting your feet up, sipping a fruity drink on some warm beach – not having a care in the world.
But a big roadblock to getting to retirement is the somewhat regular events that test one’s commitment to sticking to a financial strategy. These roadblocks often arrive in the form of a general economic recession where investment markets often correct 30% on average before, historically speaking, recovering and moving on to new highs over time.
If your confidence is shaken by an economic recession and you miss the recovery, then you risk not achieving your long-term lifetime goals through the growth and additional capital that can be acquired during normal economic times. And that is the conundrum!
While wise financial advisors will remind their clients about their long-term goals and the role of patience, some people nonetheless want to seek safe harbour against perceived short-term risks.
When someone lets their feelings dictate their investment decisions, then there is no process for knowing when the danger has passed and/or when it is “safe” to reinvest to profit from the expected upswing in the economy and financial markets. There is no plan, only a feeling!
To navigate market volatility, the two best wealth-building actions are proper asset allocation during times of economic weakness and being positioned to take advantage of the expected recovery and upswing! And there has always been a recovery throughout history.
During the most recent bout of heightened stock market volatility, wise investors are sticking to their long-term strategies because history clearly shows that times of short-lived financial stress have never permanently prevented the World economies from advancing to new highs.
In fact, looking back over the past nine (9) decades, investors around the World have witnessed global economic challenges no less than 85 times – and yet, the World kept turning.
How can Warren Buffett have confidence in the future? Because, he has lived through more ups and downs in the investment markets than most other people alive today – and he has an unshakable faith in human ingenuity to solve complex problems.
The bottom line is that while investing isn’t always easy…it is relatively simple. Ignoring the inevitable market ups and downs that occur over the years, owning a collection of great companies (either individually or via an investment fund) can be a great way to achieve financial success as long as an investor is patient and committed to a long-term financial strategy.
Contact my office to discuss how best to position your portfolio assets for the next 3-5 years and beyond. Also, visit myfinancialsolutions.ca for additional financial information on insurance, retirement, estate planning, investments and whole host of other financial topics
