Is it time for investors to look beyond their noses?
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It is safe to say that the mood of investor confidence is at an all-time low. The cost of living has put the kibosh on so many aspects of investing. There is more than a whiff of uncertainty in the air. It’s not just about the war in Ukraine, but the continued disruption to supply chains around the world, and China’s zero COVID-19 policy. And with the IMF cutting its global growth projections for 2023, the future does not appear to be rosy.
Every aspect of our lives has been impacted by the cost of living. Russia restricting gas exports has put into place contingency plans like energy rationing and higher costs. This is why investors need to start looking beyond the economic headwinds. How do we see a way out of these sticking points?
Recognising areas with lower impacts
While many economies are slowing down however there is one industry that is still booming. Real estate costs are slowing down in the UK, however, the rising interest rates are meeting the costs of properties square in the middle and now investors are looking further afield. Countries like Australia are offering a lucrative house and land package, where an investor can build a property but also own land.
When we look at areas that have a low impact, not just in terms of the industry, but physically, we may think of this as too much effort upfront, especially for countries further afield. However, when we think about the next few years, not just in terms of growth forecast, but also in terms of the reputation of the United Kingdom on a global stage, we need to break out of that short-term thinking.
There is a lot to be said for how the UK will get out of this crisis, but the next six months is where the challenges lay. The u-turns that have been conducted in recent weeks, the turmoil within the government, and the sheer uncertainty of what is going on mean that no one has a crystal ball. We can’t even look to history to acquire a template here. And the perils of investing right now within the UK mean that anybody looking for a profit is going to find themselves bitterly disappointed. This is why low-risk ventures are going to help individuals play it safe.
Reconceptualising risk
Investors need to look beyond short-term volatility. However, short-term volatility can easily expand into the long term. This is where investors need to widen their focus. Volatility is not just risk. Risk can take many different forms. Many investors shoot themselves in the foot thinking that they run the risk of failure is because they don’t meet financial goals. Investors need to recognise that the nature of market volatility is something that is part and parcel of the market. Arguably, reconceptualizing risk into something that is to be expected rather than feared can centre an investor.
Individuals who have diverse portfolios tend to fare better in short-term problems, however, the very nature of investment should be long-term. There are always people like Warren Buffett that always viewed investments as a long-term strategy, and this can help us to avoid catastrophizing events. We are seeing unprecedented events arising from Ukraine, however we look far back in time and we have to recognise that markets will stabilise.
As soon as Liz Truss announced that she was stepping down, this spiked the pound! However, we have to remember that short-term reactions in the market are not the most effective litmus test for a great investment. Understanding that investors look beyond what is in front of them is not just an effective strategy for now to minimise emotional risk, but it also provides an effective template for dealing with changes in the market.
Investors need to start looking beyond their noses
It goes back to the basics of any investment: risk tolerance, which is your comfort level within your portfolio, should factor into any investment decisions. Investors must view volatility in context. Sure, in the short-term, prices can sway but historically, equities’ short-term volatility results in greater long-term returns. Investors need to stop being myopic with their concerns.
Playing the long game is a far more effective approach, because while investor confidence is at an all-time low, many events throughout history have showcased the major downturn in the market but only for it to bounce back. Investment is about playing the long game, and it’s vital to remember that as countries wage war and concerns are aloft, we should all look further afield.
