If you knew the World would end tomorrow, what would you do?  I’d probably get family and friends together for one last big barbeque or Sunday lunch and enjoy everyone’s company. The last thing on my mind would be mowing the lawn or tidying my desk.

Every day my phone flashes up with a news headline that would lead me to message on the group WhatsApp and get everyone round!

Some headlines are absurd in increasing attempts by the media trying to get our attention.  Each seemingly trying to slap us in the face with news that feels overwhelming bad, to make us read and pay attention to them.  A little bit like my daughter when I put teddy away at mealtimes.  She will cry and shout “teddy!” hoping I will bring him back. But you must have resolve.  If I want her to eat with mummy and daddy and have a conversation with us, she cannot be cuddling teddy at the same time.  He’d never be clean for one!

Investment headlines feel the same as my daughter at times.  Lots of cries for attention with no underlying problems.

What do we expect to come?

The World certainly moves in cycles.  From the seasons of the year to investment markets.  Gordon Brown once famously announced he had ended the boom-bust cycle only for it to be revealed he had done so by borrowing increasing amounts of money each year to stimulate the economy and it rebounded back harder than ever when the borrowing stopped.

If markets have cycles, where are we in this one? A great question many investors will be asking.  When will we see these markets end and new ones take shape?  Change in the financial world is nearly always sudden.  You probably know of events such as Credit Crunch, Black Monday, and Black Wednesday.  But you don’t have a matching name for when markets suddenly rise.

That’s because the good news doesn’t sell as well as the bad, so they don’t create lovely terms for them.

What I expect to come the second I finish this article is constant change, but growth.  The world, despite the articles of a great depression style recession written in December 2022, continues to grow.  Albeit growth varies from country to country so your portfolio must be global.

If you took the view that the UK economy is going to be weak for the next 12 months, would you avoid investing into any UK company?  The majority of stock market growth happens when economies technically enter recession.  This leads many to question that there is a recession at all! So be specific, include stocks that make sense rather than carpet investing across all UK stocks by buying an index.

What investments risk should you take right now?

An investment portfolio that contains a higher level of risk, if well run, will outperform over time a portfolio that contains less risk.  As a 16-year-old studying economics I could tell you this.

As an 18-year-old studying economics at university, I then learned any investment risk can be very painful if you need to make unexpected withdrawals from your portfolio.  If you took high risk, it fell quickly and you then need cash, you crystalise losses but if you can leave the portfolio alone, you go back to the first point.

As a 25-year-old, when I began my financial adviser career, I appreciated the importance of liquidity within an investment portfolio.  Matching your liabilities to your asset maturities.  It lets the high-risk investments ride out the markets while you draw your daily cash flow needs from the lower risk investments.

Fast forward today, as a 44-year-old, I can highly appreciate the importance of emotion during the investment journey.  Yes, high risk can reward you more than a cautious approach but if you wake up every night worrying about your investments this will eventually be counterproductive as you will be more likely to sell investments following a fall and move into cash to simply stop the pain.  This can really derail your long-term objectives.

So, what risk should you take now?  Our portfolios have less risk now than 2 years ago, but you probably know if you are a low, medium, or high-risk investor and this shouldn’t change materially with market performance.  We would change your portfolio behind the scenes.

I look at my investments regularly, but I can reason that the high-risk investments have until I am 67 years old before I need to then start to take cash from them and some high-risk ones will still be there on my death!  In the 5 years approaching retirement I will shift some high-risk investments into low risk so I can build up a cash pot and it is there I will draw from.  The overall total does matter but it is more about the long-term direction of travel and what liquidity I have.

As I am looking to move house next year, I am saving into my Government Gilt portfolio as this gives me a largely tax-free return and is not suffering from the daily stock market movements.  Whilst not suffering from daily stock market movements, lower risk assets such as Gilts have performed poorly over the last year, however I have time horizon for this portfolio and understand what the asset will return, in time.

So, when thinking about what risk you should be taking, think about what the capital should be doing for you in your financial plan and try to look beyond short-term momentum but more into the individual holdings and what they can do from here.  Keep a handle on your cash flow and liquidity and let your portfolio breathe.

Summary

Knowing what action to take is arguably the hardest part of investing funds.  I would never advocate a strategy of doing nothing.  Have conversations with your advisors and investment providers.  Be part of their process in deciding how to position your capital.

They say it is important to evaluate your professionals when you are in times of stress.

If you are getting, clear and consistent direction that is a very positive thing.

Sometimes we must be patient to allow the strategy to work but overall, it is important to never panic.

So, are we in the eye of the storm or are we approaching the end?  I would say we are approaching the end of the current cycle looking at all things begin equal.  What I feel this means is our opportunity for investment returns is far greater than when this current cycle began.  Having said this, I have built resilience into my financial plan to say that I am solid if the current markets persist for longer and I’ve done this by working harder on the short end of my portfolio.

Enjoy the journey readers and know that “it will be all right in the end, and if it’s not alright, it is not yet the end.”