Recently, I have had a few questions from clients and friends about the impact of the changing world on their investments. However, one question has stood out: “Is there not something better I can do with my money, and should we not be looking at alternative ways of thinking about money?”
These are valid questions, given the pace of change and the recent volatility. People naturally wonder whether what worked in the past will still work in the future. I also ponder this question – and the honest answer is: I don’t know.
Most financial market data cover a period of global prosperity, driven by strong tailwinds like population growth, globalisation, automation, and technological advances. But we can no longer take strong population growth for granted. And the current tariff spat has likely changed globalisation trends permanently.
So, what has worked over the past 100 years may no longer be effective in the future.
However, we also don’t know what will work. Making bold guesses about the future can be even riskier than sticking with what has worked so far.
What we do know is that human behaviour, especially when it comes to money, is unlikely to change. Good financial planning has always been as much about managing human behaviour as it is about managing money. What do I mean by this?
It’s likely that retirement products, which make it harder to access your money, will continue to help people build capital, because they create a form of forced discipline. Starting early will likely remain one of the best ways to make significant capital. Growth assets like shares and property will likely continue to outpace inflation. It’s likely that diversified portfolios will help people ride out the volatility, and that having emergency funds will be even more critical in an uncertain future.
These are not get-rich-quick ideas. They may be boring, but boring often works. They’re designed to deliver consistent returns above inflation. They won’t shoot the lights out and may not give you bragging rights at a dinner party.
By contrast, investments based on potential successful future themes are highly likely to produce volatile returns.
The danger arises when we believe that something fancier will consistently yield higher returns without risk. That’s when people fall for Ponzi schemes or the latest investment fad. By all means, if you’d like to bet on a trend, do it with money that you can lose. Just don’t bet your future on it.
And if we do see permanent changes in the structure of financial markets, it’s probably wiser to trust skilled professionals to make those decisions on your behalf.
So, my answer to that question is this: instead of focusing on what will change, focus on what will stay the same. Human behaviour is one of those stable factors. Manage your behaviour instead of your money.
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Kind regards,
Sunél