Investing in uncertain times: why back to basics is the best approach

If you’re trying to grow your wealth, recent years have been full of mixed messages.

The news is full of US-China trade wars, Brexit uncertainty, and continued low interest rates to support the world economy.

But at the same time, markets have scaled new highs, we’ve seen three trillion-dollar listed companies (Microsoft, Apple and Amazon), and company earnings are on the whole strong.  What’s going on, and what should investors based in Ireland do?

The key is going back to basics.

The truth is that much of the economic news is noise.  If you’re keen to safeguard and grow your wealth, five watchwords hold true.

1. Be global

We live on a fairly small island.  Yet it’s amazing how many people base their investment portfolios on a handful of domestic companies such as the Irish banks, or even global businesses based in Ireland, like DCC, CRH and Kingspan.

These companies might have their place in your portfolio – but that should be based on an investment case, not on where their HQ is situated.

Worries around Brexit are a good example: Brexit looms large for Ireland, but from the perspective of the global investor, it’s a surprisingly small part of the picture.  Britain, after all, represents around 2% of the world economy.

Investing on a global basis offers more ways to avoid or reduce risks.

2. Diversify

They say diversification is the only free lunch in the world of investing.

And there are so many ways you can diversify your money.  You can spread it over different kinds of assets (from company shares and government bonds to cash, commodities and property).  Within each ‘asset class’, you can spread it among many different companies, bonds, and so forth.  And you can spread it in different geographies, as we’ve said.

Perhaps the simplest way to achieve diversification is by using multi-asset investment funds, which are designed to place your money in numerous different assets.

3. Remember the upside as well as downside

It’s true that investments go down as well as up.  The trouble is, investors often sell at the worst moment.

Take a look at the chart.  It shows the performance of the global stock market over the last three years.  At the start of 2019 markets were at a two-year low (circled in green).

Yet the bounce-back was very strong, and by mid-March, an investor who had stomached losses at Christmastime was back into growth territory – and has had a great half-year since.

The risk of selling when markets fall is that you can lose more by missing out on the recovery when it comes.

4. Bad news sells – but companies still work

There’s plenty of talk about the long bull run markets have enjoyed since the global financial crisis a decade ago.  Some people worry that can’t continue.

But the fact is, company earnings are still strong, and overall valuations are in line with historic trends.

Good companies are designed to make money for their investors over the long term, by making things that customers want.  There’s no reason to think that will change any time soon.

5. Do something rather than nothing – and don’t chase ambulances

Investing is not about searching for bargains.  In the end, the methodical investor wins.

At a micro level, company share prices generally move up and down for a reason.  So avoid looking for the next big thing, or focusing on opportunities that look cheap today.  If the reward looks high, there’s a good chance the risk is high too.

Far better to seek out quality at a fair price, and give your investments time to do their work.

So when’s the best time to invest?

Fact is, it’s near-impossible to time the market.  You can manage your exposure by increasing your investments gradually, and by applying the lessons above.

What’s important – especially when you can’t get any interest on cash savings – is to come to terms with the uncertainty, and invest for growth in a planned way.