When it comes to constructing financial plans, monitoring and maintaining them we are always striving to be as optimal as possible.
This involves the use of ‘reasoned and reasonable’ assumptions along with a deep understanding of the person and their goals, investment markets and construction as well as the UK taxation system.
However, with all the best will in the world there are things which are outside of everyone’s control. Whilst it is very difficult to attempt to mitigate the impact of the ‘unknown unknowns’, we can do our best to mitigate the impact of ‘known unknowns’.
These are things that you should consider to be ‘Features’ rather than ‘Bugs’. Here are the three that tend to pop up for most people over the years.
1. Unexpected life events
This can be extremely wide ranging – from health issues, changing personal circumstances such as change of relationship or loss of loved ones, work related such as change of job role or redundancy, or something different altogether.
I am yet to come across anyone who has never had any unexpected life events and therefore to some degree this should be expected. It is hard to plan for these without knowing what they are and so sometimes it means needing to tweak plans significantly, but it shouldn’t be unexpected throughout a lifetime.
2. Short term financial market movements
Whilst it would be nice if financial markets went up in straight lines and it would make things much easier to manage, unfortunately this isn’t the case.
According to JP Morgan* the UK stock market FTSE-All Share has had average intra year falls of 15% and no years of zero negative intra year falls over the period from 1986-2024. Despite this, 69% of calendar years over the timeframe had positive overall returns.
Therefore, it would be sensible to consider short term financial market movements to be a feature of investing rather than to assume that this is a major bug given the frequency of it happening.
The logical thing to do to shelter your mind from this is to simply not check valuations during the year and only assess them annually, rather than seeing them in real time.
3. Significant financial market declines
As with the point above about short term movements, there have also been several occurrences of significant market declines to consider this a somewhat regular feature rather than a major bug.
Since 1970 there has been 12 global ‘bear markets’ where the MSCI World stock market index had declines of 20% or more*. However, on 100% of occasions the markets have recovered (with varying timescales).
That’s not to say that it is guaranteed to happen again in the future as unfortunately I do not have a crystal ball. However, I do have sufficient faith to consider this to be a feature rather than major flaw.
Talking from experience these are the times where your beliefs are questions and it feels horrible for everyone involved (me included both as an adviser and an investor). However, when these have happened in the past, the best thing has always been to take the active decision to take no action with adjusting the investment position as this would have meant missing out on the following recovery.
Please note investments carry risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.
*Source: JP Morgan Guide to the Markets Q1 2025
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