WHEN everything in life is in a steady state, it can be easy to become wistful for a bit more interest or excitement. If the past year and a half has shown us anything, it’s that a wish to live in interesting times is a double-edged sword. Recent events would probably be best regarded as alarming rather than exhilarating, and so to describe the past 18 months as “interesting” would be a semantic dis-service.
We have witnessed a seismic shift in the perceived world order and even more significant economic shocks, both in terms of the cause, and the coordinated and substantial government responses.
All of this can seem quite disconnected from what we are currently witnessing in stock markets; despite some small periods of turbulence, global equities have continued their impressive rise over the last number of months, with some familiar themes of technology and the US starting to really flex their muscle.
The spectre of interest rates looms large in much of the analysis, and this is perhaps perceived as a performance driver of growth in global equities. It is our team’s view, however, that diversified investors should not be lured into an over-analysis of such matters.
What has become clear is that there is still a long way to go in this recovery: the recent US unemployment data is a timely reminder of this. Closer to home, as the UK’s furlough scheme starts to wind down and business recovery really beds in, the true economic picture is likely to emerge.
Regular readers of this column will recognise that, although inflation in real terms is starting to have an impact on tangible items, the path of that inflationary pressure remains unclear. Thus far, we aren’t seeing any real sting in the tail in consumer price indices.
Moreover, as the world economy recovers briskly, we cannot divorce the impact of government support on a global recovery. This support is one of the most distinguishing features of the last year, that really sets it apart from any previous pandemics we may read about in the history books. Longer term, the impact in terms of accrued government debt will no doubt come home to roost, but where and when also remains unclear.
As always, long term investors with a diversified portfolio would do well to avoid getting caught up in, or distracted by, potentially short-term fluctuations.
The reality is that we are indeed living in interesting times and what is likely to come to the fore – and potentially bolster our recovery from the impact of the pandemic - is our capacity to innovate at a rapid pace. The recent vaccination success is a timely and unprecedented reminder of humankind’s ability to achieve huge innovation at speed.
Living in interesting times means there are always plenty of paths to prepare for. The real wisdom for investors is in knowing that these paths will be priced into the world’s capital markets before investors can easily act to make adjustments. With long-term, strategic asset allocation, you are not just positioning your portfolio for one potential path ahead, but the myriad of twists and turns that exist from this point onwards.
None of us are able to confidently predict what the future holds, but what we do know is that, as one of those multiple potential paths begins to solidify, it will already be too late to change your investments in order to benefit or indeed defend. The only thing that can ensure you’re able to take advantage of it is a considered spread of investments.
All investors trying to crystal ball gaze are reminded that investment is an endeavour which rewards patience: think of it more like an ultra-marathon than a sprint. Stay invested. Stay diversified. Remain long term and do yourself a favour this summer by checking on it as infrequently as you can – try not to get distracted and keep your eye firmly fixed on your own finishing line.
:: Jonathan Sloan is head of wealth & investment management at Barclays in Belfast.
