15 Aug 2022

Making Cents: You can stop giving me advice now

Making Cents: You can stop giving me advice now

Sometimes there is a reason that advice is free Picture: Pexels

Have you seen the value of your fund today? It’ll have gone down again you know.
That’s what one gentleman told me recently that his work colleague keeps telling him. A day doesn’t go by, where this guy reminds not just him but everyone else that fund values are down. He never tells them about the good days though.
He’s telling anyone that will listen that they should move all their funds into cash, and he even suggested at one stage that they stop making pension contributions altogether.
Whilst his intention might be good, the problem with this type of unsolicited advice is that it can actually do more harm than good.
People like this are not only unaware of other people’s exact financial situation, but they are also unqualified to offer financial advice. And the big problem with most advice that comes from them is that it’s based on just one thing - returns.
Nothing else.
Which can make their advice completely wrong because some people might only need an annual return of 2% each year to achieve their target number and others might need 9%. Some people’s tolerance for negative returns could be 15% and others it might be 2%.
The other problem with getting advice from people like this that they have no clue what funds others are investing in. This guy is assuming everyone’s is the same as his.
He also has no clue about what age anyone else is planning on retiring at, what fund they need, what their spending in retirement will be, what their partners fund is, what other sources of income they may have had, their risk tolerance etc.
I don’t like to say it, but I’d avoid hanging around with market obsessed people if you can, because I’ve seen the damage their constant feedback, can have on theirs and other people’s decision making.
As one excellent financial commentator (Liz Weston) once said, how much you lost or gained today will never inform sound decision making. And she’s right because if you make a gain or a loss, it’s really only paper money, nothing really has happened until you do something with it, right?
She also said, when corrections happen people should limit their exposure to news about it and should avoid checking their fund balances. And the reason you should avoid doing this is because fear can trigger impulsive reactions like panic selling in a downturn or moving your fund into cash and locking in your losses when in fact you should be buying more and not selling.
And I get that it’s perfectly normal to get nervous, of course it is.
The volatility in markets we’re experiencing since the start of the year can test everyone’s resolve. It can be difficult to see your value tumble and there will be an urge to make it stop, until things calm down. You want to bank what you have and wait and see what happens when things return to normal. But as difficult as it may seem, you must try and take the emotion out of investing.
And to help with this, rather than asking yourself, what should I do, ask yourself instead, what shouldn’t I do?
And what you shouldn’t do, is panic.
Panicking and making impulsive decisions could be the worst thing you could do.
Because you’re locking in whatever losses that just occurred. And when you have the confidence to return, you may never get back what you lost.
A great example of this was when Covid hit. Between February 19th and March 23rd, some markets dropped by 34%.
But guess what would have happened if you stood firm and didn’t panic when these drops occurred?
12 months later, you’d have seen an increase in the value of your fund by c. 77.8%. I’m using the S&P 500 as the example with these numbers by the way so for some the increase could have been more and for others less, but either way, if you did nothing you would have been better off a year on.
Another mistake people make is that if they make a change and move into cash, they stay there.
And that just makes things even worse. And don’t think that because you’re invested in cash means you’re not losing any money, because you are. Your real return is negative 9% because when you factor in inflation and management charges, and you must, that’s what your return is.

I heard someone say recently that if you’re looking for a place to hide, cash isn’t it, and they’re not wrong either.
Putting funds into a cash fund is fine if you are close to retirement and you want to set aside income for say three years where you will use the funds to pay yourself an income, then I’ve no issue with cash, and no issue with holding cash for emergency purposes, but it doesn’t make sense to hold all of your fund in cash if your years to retirement are still a way off.
Look, the thing about stock market corrections is that you’ll never know when they might turn around.
Research conducted by JP Morgan discovered that investors who missed out on the top 10 days when the biggest returns happened, saw their returns fall in value by 50% and that was over a 20-year period.
If you missed out on the 10 best days out of 5,219 working days in total, your returns would have been halved, compared to those who stayed invested.
And when do these 10 best days usually happen?
Immediately, or soon after the worst days.
If you have a plan in place and you’re happy with its structure and how it’s aligned to your risk profile and is delivering the types of returns you want it to, then there’s no reason to start re-evaluating it now and making too many changes to it.
But that’s not to say, you shouldn’t tweak it either. There’s that saying, never let a crisis go to waste, and when markets start correcting, maybe you should consider moving more of your fund into asset classes that become more valuable when markets reduce.
And that’s a topic I’m going to cover in next week’s article.
I understand how you can get wrapped up in negativity when markets are down but you need to resist the urge to dip in and out of the market especially if it’s a long-term investment or pension fund you are concerned about. With these types of accounts you’re not investing for 2 or 3 days or months or even years, you’re investing for as long as you’re alive.
The take-away from this article I hope is two things: (a) if a work colleague or friend keeps talking to you about fund values every day, then ask them not to, and (b) don’t panic sell or make too many corrections to your fund because in the short-term missing out on even a very small number of days that produce strong returns, can ruin long-term returns.
Losses are painful, I get that but downturns tend to be temporary, and a recovery will happen. Stock market falls are inevitable, but so are their rebounds. Some might take longer than others, but they will rebound. So, stay focused on your goal, rather than obsessing over daily or monthly values, not only will you feel better but you’ll also be financially better off in the long run.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at or

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