The return to normal
After two remarkable years in the financial markets, February and March brought a return to a more familiar pattern. The US market, which drives global sentiment, declined by approximately 10% in four weeks, driven primarily by the uncertainty surrounding Donald Trump's proposed trade tariffs and concerns about their potential impact on corporate earnings.
Naturally, news headlines turned dramatic, market commentary took a decidedly negative tone, and some investors felt uneasy.
But here's the reality check we all needed: After two years of very little volatility, this is the market behaving precisely as we should expect it to.
The Reality of Market Rhythms
The relatively smooth sailing of 2023 and 2024 was the exception, not the rule.
The financial markets have historically moved in a pattern that includes regular periods of decline interspersed with longer periods of growth.
Since the turn of the century, the average annual market decline has been approximately 16%. So, while the recent decline happened very quickly, what we're experiencing now is milder than what history suggests we should expect in a typical year.
The real outlier wasn't this decline; it was the previous two years of extraordinary returns with minimal volatility. While those returns were certainly welcome, they may have created an unrealistic expectation of normal market behaviour.
The Innovation Response
One concern driving the current decline is uncertainty about how new tariffs might affect corporate earnings. It's worth remembering that, throughout history, businesses have consistently demonstrated remarkable adaptability.
In the short term, yes, earnings reports may reflect some turbulence. But, in the long run, the great companies of the world that make up your portfolio have a proven track record of innovating their way around new challenges. They adjust supply chains, develop new markets, improve efficiencies and find ways to continue growing in the face of obstacles.
This adaptability is precisely why equity investments have outperformed other asset classes over time: not because they're immune to challenges but because they repeatedly overcome them.
Discipline: The True Wealth Builder
The path to financial success isn't paved with perfect market timing or selecting next year's winning stocks. It's built through consistent, disciplined behaviour during periods precisely like this one.
Lifetime investment success comes from continuously following your financial plan. Likewise, substandard returns and even lifetime investment failure come from reacting to current events. This principle is being tested now, and it is the perfect opportunity to demonstrate its truth.
Every market decline throughout history has eventually reversed, and successful investors understand that these temporary downturns are simply the “price of admission” for the long-term growth that often follows.
For those still in the saving stage (when you’re investing every month), the current period represents genuine opportunities. Each contribution you make during down markets purchases more units of the great companies of the world at discounted prices.
This Too Shall Pass
The financial media thrives on creating anxiety about short-term market movements. Their business model depends on keeping you glued to headlines and market updates. However, successful investors understand that daily market news is merely noise that distracts from the signal of long-term growth.
Our advice remains unchanged: ignore the short-term noise. Focus instead on the aspects of your financial life that you can control: your savings rate, your spending habits and, most importantly, your behaviour during market declines.
If there has been no change to your circumstances and goals, your financial plan should not change
If there has been no change to your financial plan, your portfolio should not change
While we do not know what positive or negative news awaits us in the coming weeks, we urge you to stay patient, remain disciplined, and continue behaving your way to wealth.
As a reminder, this is what stock market returns have been over the last month and 30 years.
What we’ve done
The great news is that, in the last few weeks, we haven’t received any emails or calls from any clients worried about what was happening in the markets. In fact, we’ve heard from several clients wanting to invest more given the markets were down.
I did get one email from a client saying, “I know the only way is to have a long-term strategy.” ⭐
This is why we haven’t been sending lots of reassuring emails over the last few weeks. Please do let us know if you would have preferred that!
As we’re now at the beginning of the tax year, it makes sense to start maximising your ISA and pension tax-free allowances now, rather than waiting until the end of the tax year, which could potentially save you between £200 - £400 in tax.
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“Stay the course. Changing your strategy at the wrong time can be the single most devastating mistake you can make as an investor.”
John Bogle
We hope you enjoyed this month’s newsletter.