This year has not been particularly good for investors. The declines in the markets during the first semester, a sustained rise in the prices of everyday products and the increase in interest rates, have made it a confusing period to make important decisions when investing.
Some of the possible perspectives that we can highlight going forward are:
– Consider that the market is entering a new postmodern cycle; higher inflation and interest rates, more regionalization, scarcity, more expensive energy and labor, higher government spending but more stability, so yields are likely.
– It is not clear which assets will benefit most from these changes and which will continue to be negatively affected, so it is best to diversify as much as possible.
– There is a 1/3 probability of a recession in the United States and 2 out of 3 experts see a possible return and solution in the coming years, however, there is still doubt about whether or when the markets have bottomed out.
What to do with so much uncertainty?
It is likely that with all of the above you feel nervous about what is happening in the world economy, what is in your hands is not to panic, control your emotions to avoid movements that could alter your investments and know what is the best way to invest.
It is not about guessing if it is a good or bad time to invest, and much less to guarantee a higher return, nobody can guarantee you high returns, if so, it is most likely a scam.
A better way to invest is to know what to do about volatility, how to deal with it and avoid noise in the markets. That is why you must have a plan to keep your investments firm.
Everyone is different, has more or less risk aversion, different objectives and investment knowledge, so this plan is not the same for everyone. But what we have in common is that we all face the same ups and downs of the markets.
The first question you need to answer is ‘why are you investing?’ We cannot talk about a plan if you do not have a goal, this will help you organize your finances.
Then focus on the question ‘how much money would I need for my expenses if I lost my income?’ No matter your level of risk aversion or goals, everyone should have a reserve fund that is invested in low-risk instruments such as government bonds, these types of investments are less risky.
Finally, your portfolio must be well diversified with instruments with which you feel comfortable in the long term, consider that you must adjust it according to the evolution of your life and goals.
Focus on what you can control, for example, spend less to save more; We cannot control the markets, nor predict their short-term movements. Trying to do so is more related to games of chance than to investing.
Today, inflation, fear of recession, armed confrontation and volatility are affecting the markets; we don’t know when they will come to an end, nor do we know exactly what will cause the next shock or when it will occur.
If we look back over 60 years of market history, we will find that there have been major shocks that have brought markets down, and they always will, but the key is to be prepared for them rather than trying to predict them.
If you are a long-term investor, you should think about a horizon of 20 or 30 years, so you have a greater chance of obtaining higher returns.
Facing the market can be stressful, but we share our perspective in the hope of being better investors, emphasizing the plan and not the prediction.
Investing is a balance of probabilities, risk and return, at GBM we want you to have a better chance of achieving your goals. We have seen successful cases where they have maximized their returns through this plan and with the help of a trusted advisor who accompanies them.
The outlook should not be bleak if you have a plan in place, you can get market returns without having to make exact forecasts. When there is a big drop, the prices are lower so that in the future, those who buy have a better chance of obtaining a positive result.
Remember Warren Buffet’s phrase: ‘The stock market is the best mechanism for transferring wealth from the impatient to the patient’. Make sure you are a patient investor.
Editor’s Note: Juan Carlos Herrera, Director of Wealth Management at GBM. Follow him on . The opinions published in this column belong exclusively to the author.
