Festive greetings, it’s the end of another year on planet Earth. A year we again won’t forget in a hurry, the main theme again being Covid and its impact on our lives. It’s time to take stock, reflect and spend time with our nearest and dearest.

The global stock market will again end the year in positive territory, no one would have predicted this, but that’s why we don’t try and forecast short term movements. Who knows what’s in store for the stock market in 2022? What we do know is the advice is to always be in it.

Enjoy this month’s newsletter, I look forward to seeing you all in 2022.

Ben Preston, Chartered Financial Planner.

The Year That Was

As the year winds down to a close it is an opportune time to restate a few of our deeply held beliefs and make a few key observations about what we experienced in the financial markets this year.

We know that for many of you 2021 was a disappointing year. Hopeful of a return to normal, we instead experienced an extension of last year.

Whatever the next few weeks may bring, we believe that the principles we stand firm on will continue to provide a solid foundation for the money decisions you will need to make into the future.

Eternal Truths

Our beliefs are counter-intuitive and are likely to remain so forever.

Our approach to financial planning is goal-focused and planning-driven. While failed investors react to events in the economy and the market, we insist on proactively acting on a plan. This plan is informed by your cherished goals.

Once the planning is done, we can fund the plan with a suitable portfolio.

While each new world event brings with it uncertainty and a crowd of prognosticators, we make no attempt to forecast, much less time, the global stock market. Anyone who claims this ability should be avoided.

We only make changes to the portfolio when your goals change, not when the market scares us.

Lastly, we define risk not as market volatility but as the chance of not achieving your goals and running out of money in later life. We’re happy to hold your hand during the scary times so that you can have an independent retirement and leave a legacy to the people (and causes) you care about.

Another Good Year

The news cycles saw a few themes emerge this year. A lot of airtime was devoted to Covid (understandably), but supply chain challenges and the return of significant inflation have been recent sources of uncertainty.

The year may have been disappointing on many fronts, but it has delivered financially. While the front pages continued to be filled with pandemic updates, and the back pages thankfully had sport to comment on, world markets have quietly marched upwards.

The world market index is (at the time of this writing) up by 16%, after gains of 14% and 25% the two years before. These figures may seem incredible to those who’ve only been exposed to negativity for close on two years.

The great companies of the world continue to make profits, with this being either reinvested into attractive projects or distributed to shareholders. As an owner of these companies you passively benefit from human ingenuity.

Based on historical returns we know that we experience negative returns on average every four years. 2021 is the third year of positive returns. This is not a prediction, but it’s a data point worth knowing.

What shall we do with this knowledge? As I reminded you above, we believe that portfolio changes are only necessary when your goals change. We therefore encourage you to remember that the only way to be sure of capturing the full market return over the long-term is to ride out the frequent (but temporary) declines.

Looking Forward

We’re confident that what we’ve been through before will help us as we confront the future. While history may not repeat itself, it does tend to rhyme.

I wish you a safe and happy holiday and hope that the coming weeks will provide you an opportunity to do things that bring you joy with the people that you love.

🐉 The Real Enemy

The number one enemy of the long-term investor is the financial equivalent of carbon monoxide – inflation (the silent but steady increase of prices over time).

Over the last 30 years (about the length of an average two-person retirement), inflation in the UK has resulted in an item costing £1 in 1991 now costing £1.85 in 2021. Your purchasing power has almost halved!

But £1 invested in the UK share market is worth £3.50 today, and that’s ignoring 30 years of dividends! And this during a three-decade period that included the dot-com bubble, the great financial crisis, and the Covid-19 pandemic.

And what did you have to do to earn this? Two (behavioural) things:

  1. Invest and stare out of the window (much harder than it sounds).
  2. Be willing to see your investment value decrease by about -15% on average every year without being panicked into selling. Think of the yearly declines as hurricanes, unpleasant but they pass.

Guiding you through these periods of volatility is why we exist.

🛑 Ignore the media

The media is not a friend of the disciplined and patient investor. Ignoring the key determinants of lifetime investor returns, the media prefer to focus on short-term returns, market predictions, and negative news.

We present the following as an antidote to the onslaught of negative news:

The Saharan gazelle saved from extinction in southern Spain

Rwanda is killing mosquito larvae with drones

📰 Read

Risking, Fast and Slow [5 minutes]. What’s hard to notice in the short run becomes impossible to ignore in the long run.

The Nothingness of Money [8 minutes]. It is only when the finiteness of life is glaringly obvious that things change.

The 10 Most Dangerous Words in Investing [3 minutes]. Picking the winners is exceedingly hard.

Closing Time [6 minutes]. Reflections on some of the emotions experienced at retirement.

Why It Pays off to Be an Optimist [4 minutes]. If you believe the world is bad, you won’t have a hard time finding evidence.

Internal vs. External Benchmarks [4 minutes]. Detach from other peoples’ benchmarks and judge everything simply by whether you’re happy and fulfilled.

🎧 Listen

Big Goals, Little Steps [36 minutes]. A simple strategy that can make your biggest goals more manageable.

🍿 Watch

The battle between your present and future self

🖼️ A Picture is Worth a 1000 Words

Saying Bye to Facebook: Why Companies Change Their Name

The Best and Worst Pension Plans, by Country

24 Cognitive Biases That Are Warping Your Perception of Reality

I hope that you enjoyed this month’s newsletter. Please let me know what you enjoyed, or write back with any of your own news.

Please forward to a friend, relative, or colleague.

As always, we’re here for you.

See you next month,

Ben Preston APFS, CertPFS (DM), CertCII (MP)

Chartered Financial Planner