Uncertainty, in Both Life and Investing
Key Takeaways
There will always be uncertainty when investing — that is the reason why we receive a premium for the money we put aside.
While long term growth of the global stock market is historically proven, its growth does not occur in a straight line. Shying away from uncertainty will likely lead to giving up any chance of growth.
While you cannot control the market’s ups or downs, you can control your investment allocation and the risk you take, giving you the best chances of meeting your financial goals.
Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.
As we approach the end of the year with the usual slew of get-togethers with family and friends, there are a few topics that are typically “taboo” because it can create strong emotions and opinions that give rise to unintended conflicts. These topics usually involve money or investment talk, and politics.
Politics aside, speaking about investments can be useful — rather than the typical “buy this investment because it is good” or “I made so much money from this asset” — if you approach it from the perspective of learning to deal with uncertainty as an investor, such conversations can be enlightening.
There will always be uncertainty when investing. How many times have you looked at what was going on in the world and thought: “I have no idea where the market can go, so I will wait until things are clearer” or “I should sell now and hold cash, until I am more sure of the right time to get back in.”
Investing, like life, will always be uncertain — that is the reason why we are paid a return. We exchange some certainty in order to receive a premium for the money we put aside. As such, life will always be exciting (or perhaps anxiety inducing for some) as we never know what could happen tomorrow, let alone 10 years down the road.
In order to speak to our valued clients and investors about uncertainty in a balanced and realistic way, the following points are taken from our investment philosophy and addresses the uncertainty of investing of which we apply everyday.
There is No Growth Without Uncertainty
The diagram above is the growth of $1 invested in a global stock market index over time. Whilst the market has done well for investors, with $1 growing to around $6 now, its growth does not occur in a straight line. Periods of growth are often followed by long periods of uncertainty — which can even last for many years. If you shy away from uncertainty, then you are likely giving up any chance of growth.
Just like life; “should I take the new job?”, “what school should I go to?”, “should I move to a new country?”, “are they the right one for me?” — uncertainty is often paired with opportunity.
Control What You Can
Can you control who you become or how your life would pan out in ten to fifteen years? Definitely not with 100% certainty, but you probably can roughly estimate and consider the possible outcomes, and if you manage it well, you can narrow that range quite a bit.
When investing, you also cannot control whether the market will go up or down tomorrow, whether a financial crisis or geopolitical event would create some volatility, or even what actions central banks around the world will take. What you can control is your investment allocation and correspondingly, the risk you take. This way, you can manage your possible range of investment outcomes, and avoid making drastic changes at the worst possible times.
In addition, knowing and managing your range of investment outcomes allows you to plan for worst-case scenarios, just in case it comes to pass. Think of it like bringing your umbrella with you on a sunny morning, because given the weather of late, there is always a chance of rain.
So if you have a chance to talk about investing around the dinner table at the end of this year, keeping these principles in mind will allow you to share valuable lessons of a sensible investment approach, which will be a far departure from the typical “investment speak”.
Still feeling uncertain after this? Come and speak with us.
