In the past week the fallout of the UK Government’s mini budget has caused intense market reaction which saw sterling weaken to its lowest level against the US dollar since 1985. It’s also clear the situation has been more concerning for UK investors than those in other places. Charlie Buxton, our Head of Investment Management shares some analysis on what we’ve seen over the last few days.
It’s been a long time since we’ve witnessed such extreme volatility in a developed market currency and, combined with a loss of confidence in policymakers and a warning from the International Monetary Fund, this has been a torrid week for UK investors, sterling and the traditional safe haven of government gilts (debt). Market reaction has been brutal, sufficient even to prompt direct intervention by the Bank of England which has now pivoted from selling to buying gilts to stabilise prices. For now, sterling appears to have stabilised as a result, at least in the short term. However, market moves have increased the external pressures demanding an emergency interest rate rise.
”Be greedy when others are fearful and fearful when others are greedy.” Warren Buffet.
History has shown us that the unpredictable and unsettling events that periodically arise are a feature of a modern, global economy. The gloom that dominates our news can both significantly impact our mindset and lead to behaviour that is the polar opposite of what Warren Buffet recommends. The best and worst trading days often occur close to each other which is why holding firm and closing out market ‘noise’ has been shown time and again to be the friend of the patient investor. As an illustration, one study which looked at the performance of the S&P 500 since 1990 found that if you had missed the best five investment days then your investment portfolio would have performed 37% worse than if you had simply remained invested throughout.
So what should you do?
It’s clear this ongoing uncertainty is highly concerning for UK investors, especially given it has come on top of existing significant domestic and global pressures. Whilst we can’t know when the current volatility will abate, the bottom line is that abate it will. As we have shared with you on a number of occasions, not least over the past couple of tumultuous years, our advice holds true: time in the market always beats timing the market.
To discuss any aspect of your investment portfolio please contact your dedicated Financial Planner at The Fry Group or get in touch with your nearest office.
