Commodities are volatile, cryptocurrencies have crashed and the cost-of-living crisis is causing panic around the world.
With economic uncertainty affecting portfolios, mortgages and job security, most people are likely to be affected in one way or another. For those of us who create financial plans for a living however, this isn’t our first rodeo.
I’ve worked through the financial crash of 2008, the pandemic, and now the cost-of-living crisis. I still worry about the economy and how it’ll affect my boys in the future, but having experienced financial turbulence many times before, I can see how investors will continue to see growth in the long run.
I have vivid memories of a train journey down to Charing Cross Station back in December 2008. I was on my way to give a financial planning presentation to a group of junior doctors at Charing Cross Hospital. Yes, I was completely unaware at the time that the hospital was nowhere near the tube station.
As I sat on the train, I was reading articles about people queuing outside Northern Rock. I also read about one of Gordon Brown’s speeches, in which he stumbled over his words and said the British government had stepped in to save ‘the world’. He meant to say ‘the UK banking sector’.
I remember thinking: “What am I going to tell these junior doctors about the future?” House prices could fall, the stock market dropped 5% further each time I looked, and who could say for sure that they’d be employed in six months’ time?
When I stepped off the train and walked up the hill to the Strand, I took a phone call from another client. We’ll call him Peter.
Peter was a doctor and had left university five years earlier. He’d received a £50,000 inheritance and had asked me how to make the most of the money. We’d decided that, based on his circumstances, the best thing would be to invest in long-term growth. After all, he already had a good emergency fund and didn’t need the money urgently.
But now, with the financial markets in turmoil, Peter was calling me in a panic
He was understandably concerned that his £50,000 investment was now only worth £35,000. I have to admit, I was concerned for him too. He’d trusted me with his money and I didn’t want to let him down.
I had to remind Peter (and myself, if I’m being completely honest) that we were invested in a globally diversified portfolio. I knew that companies would struggle in the next six months and some may even go to the wall as Lehman’s Brothers had recently. More than 20,000 people were out of a job from that company failure alone. Investors lost billions of pounds between them.
Thankfully, I knew that our portfolio was invested across companies around the world and it was as strong as it could be. I told him: "I can't promise you what will happen next, but I'm absolutely certain your portfolio will not go to zero. It's impossible for all the companies in the world to be worth nothing, and I'm almost certain if you hold the portfolio for a period of time, and that might be two more years or three more years, you will get your money back if you hold your nerve. And if that happens and you decide stock market investment isn’t for you, then take your funds out then."
Peter is still a client today
Ten years after our call in 2018, we had a review meeting in which we went through his investment portfolio.
Thanks to Peter’s initial investment, along with regular monthly investments of £850, and one further deposit of £70,, his portfolio was worth £300,000 in 2018. The portfolio reached £370,000 in December 2021.
There’s a very real possibility that he’ll retire 18 years before the typical retirement date for those with an NHS pension. He’ll certainly have the option to, if he wants.
"I cannot thank you enough for what you said to me that day," he said, of our conversation in 2008, when I was rushing around London 30 minutes late for my presentation, and still worrying about what I’d say to the junior doctors.
Holding onto his investments and adding regular contributions to his portfolio was a life-changing decision. Had he sold his remaining investments at a loss, it would’ve been a completely different story.
I eventually arrived at Charing Cross Hospital and gave my presentation. I covered what I’d just spoken to Peter about to a largely incredulous audience, but I stuck to my guns. I’d love to know if anyone acted on my advice that day.
I recently discovered this table that I think would have helped support my message. It shows that every time bar one period, the S&P has been up 12 months later after a 25% fall.
Feel free to share it with your clients too. If we keep looking at the past, and showing clients that it makes sense to stay the course, then perhaps there will be many more like Peter who will one day enjoy a growing portfolio and perhaps even enjoy an early retirement.