It is snake season in the Cape mountains. Cape Cobras and Puffadders are now often encountered on the well-trodden routes around Tafelberg. Thankfully, I have yet to come across one of these deadly snakes. But I often think about what I would do if I did. What response would I have to the danger on my path?
This scenario is not dissimilar to what we sometimes face in the investment world, where a metaphoric snake lies in our path. What is our response, or more accurately, what should our response be?
Multiple events have presented this year that threaten our financial security. It has been particularly brutal for our investments, to the extent that even safe investments like bonds have let us down. Bonds are meant to hold up when shares go down but this year bonds have shown large negative returns too. And compared to inflation, most investments have lost out. Poison indeed.
Global inflation is running at above 8% whilst global bond values declined by 19.9% and global shares by 25.6%. To put this in perspective, the classical 60/40 portfolio, consisting of 60% shares and 40% bonds, has only ever returned worse results in two previous calendar years over the last century!
Headlines and research pieces proclaim the death of the balanced portfolio and the end of bonds as we know it.
Fear is trending higher as investors run for the safety of cash. But it is probably too late. The horse has bolted.
When we see a sizable anomaly, like theoretically safe portfolios showing heavy losses, it is rarely an opportune time to run for safety or change tactics. For those with a financial plan, it is best to do nothing.
Doing nothing sounds like the easy way out. But doing nothing when everything in and around you is screaming run, is the most difficult ask. Doing nothing requires conviction.
Doing nothing requires that we believe in our principles and that we stick to them. That we keep faith with our experience and skill, which combine to keep ourselves and our clients focused on long-term objectives.
It brings me back to Cape snakes. I believe the best option when encountering a snake is to wait for it to retreat. Yes, do nothing, even when you are facing death. Wait it out and then finish your trail.
Likewise, to continue on your financial journey and reach your destiny you may need to do nothing right now. You may need to wait it out to avoid financial death.
Doing nothing is not cowardice. It’s courageous.
Ps. Doing nothing is the right thing to do with existing investments as part of a financial plan. If you happen to have too much cash or you have never done a financial plan, this may not be the right time to do nothing. You may benefit from action. Talk to us about a plan.
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