For the first time since we had pension freedoms , we have a market that appears out of control. As I write, the London Stock Exchange is preparing to open, with the FTSE lagging the S&P by 2.5%. We are bound to see further falls this morning, as we have overnight in Asia.
What does that mean?
For many people – people who have recently acquired “wealth” , through the transfer of cash from DB plans into equity based wealth management, it means a paper loss that will run in to tens of thousands of pounds. People could lose as much in a week as they earn in a year.
Sadly some people will attempt to catch the falling knife and bail out. They will be exposed to the worst kind of market timing, the price they get for units in the funds they are invested in will be manipulated so that everybody involved in the transaction will be protected , except the beneficial owner of the units.
It’s a simple message, when you jump out of the plane , pull the parachute cord, don’t try to get back on board.
Wise words from a Financial Advisor
Yesterday morning, my friend Al Rush posted on a group of steelworker’s Facebook page , this message.
Shocks like this are never nice, but…
..but you don’t need to worry, unless that is, you are due to be drawing down a slice of your funds today or in the next couple of days, when you have no idea how much damage that drawdown will do to your “wealth portfolio”.
For you, the worry is “sequential risk”, which is a wealth manager’s phrase for “the knock on effect”.
Those in drawdown, have been cushioned for the past three years, by one of the most benign markets I have ever seen. Markets haven’t looked like dumping, as they are doing today, and people have got used to the slow accretion of paper wealth, as they skim off a tidy income.
It is precisely at this moment that I should and will advise people that they should not be in the market , unless they are prepared to take this risk and that if people are about to rush to their IFA/Wealth Manager/Stockbroker to cash in their chips. They should get back in their chairs and do absolutely nothing.
Catching a falling knife is a dangerous business, it is best to leave well alone. The reason to invest in equities is for the long-term protection it gives against inflation. Ironically, the reason that the market is dumping right now, is because of the fear of short-term inflation.
Ironically, the very thing that makes equities sore today, will make them strong tomorrow.