Why it is important to stick to the plan

I was reading an interesting blog the other day from Morgan Housel discussing the situation we have found ourselves in over the past few years. We’ve had a global pandemic that is still impacting us, a war in Ukraine and now inflation levels that we haven’t seen in some time, and it can feel like everything is going wrong. The blog goes on to discuss that lately, we are experiencing many 100-year events, one after another. However, it explains that so many 100-year events can happen at any time, so your chance of encountering a few 100-year events each year is pretty good. This is important to remember when it comes to investing.

 

There is always something around the corner, and when we invest, we should understand that these things can impact investment markets in the short term, and that’s why it’s essential to have a long-term outlook. The noise can be hard to block out with all the doom and gloom out there at the moment, but that’s why it’s essential to go back to your original plan and the reason you started investing. Our emotions can take over at times like this. Rather than thinking rationally about why this may be an opportunity or all part of the investment process, we are left thinking about worst-case scenarios. Would you want to sell if your house was priced every second of the day and dropped three per cent in one day? You should take the same action with your investment portfolio if the answer is no.

 

No one likes to see their portfolio go down, but volatility is the price of admission when investing for growth. Lately, I’ve heard from a few people that they were considering stopping their regular savings plans into their investments. This is mainly due to seeing their contributions ‘disappearing’ as the market drops. These markets can induce panic; we stop thinking about what our portfolio may look like in the next 10, 20 or 30 years and start to worry about what it will look like in an hour, even though the funds were initially meant to be invested for the long-term. This is why it becomes crucial to go back to your goals and plans for the future and why you started investing. Was it so you could retire early or because you want to upsize to a bigger home in the future? Whatever the reason, if you still need to be invested for future growth, you should look at times like this as an opportunity rather than jumping ship.

 

Looking back at history, market drops have shown to be an excellent time to put contributions into your investments, even though it doesn’t feel nice at the time. You may hear people saying, ‘I wish I had invested in 2008’, or even more recently, ‘I wish I would have put more into my investments in 2020 when Covid first hit’. History isn’t always accurate in predicting what will happen in the future; it should serve as a guide that these types of market events do happen, and had you stuck to the plan during those times, you would be reaping the rewards now. If you were happy to invest six months ago when the market was going up, why would you not want to invest now at a discount if you still have a long-term outlook?

 

In these times, our emotions can be hard to control. The doom and gloom of the news can be brutal to shut out. But, if we can shut it out and stick to the plan of why we invested in the first place, it can likely reap dividends into the future.

 

As always, if you have any questions, feel free to email me at zac@pekada.com.au.