I imagine that you will be aware that the world stock markets have been rising, but “readjusted” overnight and today. There has also been concern over the price of gold and a possible Bond bubble (nothing to do with 007). May I speak plainly? the vast majority of the stuff you hear in the media in all its forms, in relation to markets is largely irrelevant to you and I – unless you are trading shares and funds on not simply a daily basis, but throughout the day. This is, in my humble opinion and 20+ years of lessons learned, is a “mugs game”. It remains decidedly unclear whose interests are being served with a constant barrage of “news” about funds and investment markets – but certainly not yours or mine. This news is only really relevant to gamblers and “professional” traders.

Successful investing requires you and I to act with reason and frankly – devoid of all emotion. We all know the obvious – buy at the bottom, sell at the top – but this is rather a pointless statement as so few people actually behave in such a way – in any event, we don’t know what the “top” or the “bottom” is until after the event. Anyway, if selling helps you sleep, then who is to say that it isn’t a “good decision”. Nobody – yes nobody, can successfully consistently time the market. Nobody. There is a mountain of information on this stuff – we call it behavioural finance (google it if you like).

Successful investing means taking a long-term view. The longer investments are held, the less likelihood there is of loss. This is proven statistically. However many investors (professional and private) constantly chase the next idea or the “best performing” investment in the hope of not missing the boat. This results in under-performance, research in the US by Dalbar would suggest a significant under-performance each year by around 4% a year – yes that’s 4% a year less than the market by chasing ideas and attempting to time the market. For those of you that worry about me citing the US, it is the largest market by a country mile – 46% of market capitalisation (the sum of the value of shares) at the end of 2012… the UK was 7%, Japan 7%, Germany 3%, France 3%, Australia 3% and China 2%… just to give you some perspective.

Anyhow, whilst I find this fascinating, you may not. My role as a planner is to help clients minimise their mistakes and reduce the costs relating to investment. It is also to help figure out what returns are needed and therefore how much “risk is required” to ensure that you don’t run out of money.  It is not about beating the market (which can only be done with additional risk, luck and skill – but be warned, very few investors – including the professionals actually beat the market). So please take the vast majority of investment advice and “news” with a big pinch of salt.

  1. Have a plan
  2. Know what return you need
  3. Know what risk you can cope with
  4. Think long term (10 years+)
  5. Avoid attempting to time the market
  6. Implement cost-effective investments
  7. Diversity your portfolio – ie, not all your eggs in one basket

Dominic Thomas – Solomons IFA