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If we had a perfect ability to predict how far stock markets would fall and when they would bottom out, it would make sense to move money in and out. But we do not.

Millions of investors are starting to receive benefit statements from their Life Assurance Companies and the great majority of them will show lower valuations than last year’s, as World Stock Markets finished down in 2018 with steep declines recorded in the fourth quarter. With disappointing news in the broader economy the bad times for stocks continued in the first week of the New year and, while most economic data has remained strong, there are some rumblings that 2019 may be rougher than 2018. If this makes us want to re-consider our investment strategy or switch into a Cash Fund, that is understandable, but it could also a bad idea as it may mean you are not in the best investment strategy for your risk profile.

The sensible response to this unnerving series of developments is to do nothing. If we are long-term investors this recent turmoil is not something that should cause panic and it’s the price we pay for enjoying returns that, over long time horizons, are likely to be substantially higher than those for cash or bonds. It should also be noted that nothing so far in either the economic data or the market indicators that most reliably predict economic swings suggests there will be anything worse than a modest slowdown in economic growth in 2019. In fact investors moving money into Cash now would be doing so just as the valuation of stocks was becoming more favourable and most important, even if the economic road ahead really is as bumpy as some in markets seem to fear, we are probably not going to be successful at timing those swings just right.

Even supposed investment experts lack the ability to make perfectly timed investment decisions. If we do decide to switch out of markets when is the right time to re-invest? Suppose we recognised at the start of December 2007 that a major recession was about to occur and we moved money out of stocks, we would have saved ourselves from losses in 2008 and early 2009 but would we have also had the courage to put money back in while the economy was still in horrendous shape in 2009, with double-digit unemployment and a banking system in tatters?

Investors who simply left their savings fully invested in the stock market in December 2007 have now made a healthy return on that money. Could we have done better than that, or would we have missed out on a big chunk of those gains out of the same caution that led us to move money out of stocks to begin with? Investors who looked at the economic chaos of the late 2000’s and stuck to their guns have ended up far better off than those who, convinced that a double-dip downturn was imminent, waited for years to get in.

The entire point of investing in stocks is that we get greater long-term expected returns in exchange for tolerating more extreme ups and downs. Episodes like those of the last few weeks are, in effect, the price we pay for returns that are substantially higher than bonds or cash over longer periods. There are no excess returns without some volatility and risk and as individual investors, we cannot control volatility.

Robert Downes, QFA is a Qualified Financial Advisor. You can contact him through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on robert@jfl.ie