With the world holding its breath for the next Trump tweet on North Korea, with Britain fighting its own EU Brexit and France entering a new era of politics it would be easy to think that the only outcome of all these events is going to be catastrophe for your finances.
Surprisingly, conflict economics is a robust and well researched subject matter. Whilst the conclusions are not entirely consistent; in essence the increase in likelihood of confrontation tends to decrease prices, but the ultimate outbreak of conflict increases them.
In some senses this is understandable, markets don’t like uncertainty, a point that can be seen in the current Brexit negotiations. However, once hostilities start and the market get some certainty, stock markets rebound. Of course, along the way there may be setbacks or advances that change market sentiment. However, as the research shows, strong rebellions frequently reach a negotiated settlement because the incumbent can’t get a decisive win, whilst weak rebellions tend not to get negotiated settlements and the insurgents therefore snipe away from the fringes over many years.
Whilst there may be lessons here for the UK government, what should you do when there is so much political noise?
Here are five rules to help you through:
#1 Stick to the plan
Conflicts and other disruptive causes can affect share prices but there is nothing quite like panic to really affect your portfolio. Do not follow the Gil Scott Heron maxim from his track B-movie of panic now and avoid the rush.
#2 Quit trying to time the market
Predicting the top and bottom of the markets is a fool’s game. Remember being right on the first decision doesn’t necessarily mean you will be right on the second.
#3 Avoid being out of the market
Whilst conflicts can sometimes weigh heavily on the market, recoveries can be surprisingly quick. If you have trouble understanding this look up what happened with UK stock prices between March 7, 2009 and March 9, 2009.
#4 Remember diversification is your friend.
Being massively diversify means that individual stock, Country and industry risks are substantially reduced. Diversification enables you to capture the capital market returns without being subject to the vagaries of a single president, or a single government for that matter.
#5 If you feel the need to speculate in times of uncertainty, remember the alleged maxim of Nathan Rothschild of Rothschild banking fame; ‘Buy on the sound of cannons, Sell on the sound of trumpets’. Apparently, he did quite well shorting the market based on inside information about Wellingtons victory at Waterloo.
If you have concerns or questions remember we are here to help. In the last thirty years we have gained some experience around market volatility and if we can help we will.