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The Plan vs The Markets - Who wins?

Are you a have-a-go investor? Tired of getting 0.25% savings and a £25 Premium Bond win once every 5 years? Maybe you started investing last year in the hope of beating inflation?

Whether you bought individual stocks or index funds, there’s a good chance you’re looking at your investment account right now and wondering where you went wrong.

You head to the internet to do more research. You read dozens of articles from financial planners and investing gurus warning about the dangers of amateur investing. You blame yourself for not knowing what you were doing and vow to keep your money in cash going forward.

However, the problem might not be you. The problem, as I’m about to explain, might be that you’re reacting to the markets rather than… the plan

Investing isn’t as complicated as it seems

For decades, people have been fed a series of untruths about how financial markets work in search of quick and short-term sales.

For a long time, many financial advisers profited from the idea that in order to be a successful investor, you’d need to read the Financial Times with your coffee in the morning, get constant stock updates on your phone, and know each company’s financials inside out. 

If you don’t know this stuff and go it alone, you’ll fail - or at least that’s what they want you to believe. They’ve read all the books, taken all the exams and insist that they can generate superior returns to everyone else, so why not hire them?

It’s true that a lot of amateur investors lose money, but the problem is rarely that they don’t know enough about the stock market. You don’t need to know it inside out. Instead, the problem is usually reactive investing.

While some reactive investing is unconscious and human nature (think fight or flight responses), oftentimes it’s caused by paying too much attention to the market. Beginner investors often overthink the stock market because they’ve been taught to do so by the pros.

The idea that the stock market is complicated has created the very problem that good holistic and client-focused financial planners now work so hard to combat.

Reacting to the markets vs reacting to the plan

It's simply not possible to react your way to successful outcomes. And the investors that fail are usually the ones who continually react to the markets, the economy and the newspapers. 

To quote the famous American financial planner, Nick Murray: "Human nature is always and everywhere, a failed investor." 

I’ve been in the industry for 20 years and every time I’ve seen something fail, it’s because the objectives were market-focused and based on the current economic outlook.

Meanwhile, successful investing is goal-focused and planning driven. The investors that get it right continually focus on their goals and dreams in life. 

How financial planners play a role

I've been working hard this month with clients whose investment plan was set from December 2021 onwards. Like many investors around the world who started investing this time last year, these clients have been wondering why they haven’t seen positive movement in their investments.

A bad investor would look at the markets and invest in something else. But I tell my clients to hold steady and trust the process. All the plan requires is faith, patience and discipline.

You might be wondering what purpose financial planners serve, then. If any old Tom, Dick or Harriet can make money in the stock market through perseverance and focus, why hire someone to manage your portfolio?

Well, unfortunately, pushing your emotions aside when faced with financial uncertainty is not something that comes easily to the human mind. 

There are very few people who can achieve elite status in sport, without a coach. There are very few people who can self-diagnose without the support of a therapist. And doctors will only be too aware of the perils of self-diagnosis, even with people who have tremendous amounts of medical knowledge. 

So when a client calls and has concerns about something that they've read or something they've heard, it’s the financial planner’s job to listen, reassure and remind them of the plan. 

The plan was crafted with years of knowledge, expertise and data. It was designed with the client’s most cherished life goals and personal objectives in mind. It’s designed to withstand volatility and ride out the waves. If you react to the market, you lose all that. 

The plan will always prevail.

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