The Joy of Investing During Bleak Times

The financial markets, such as the stock markets and bond markets, follow a cyclical pattern. Over a 7 – 15 year period, they will pass through stages such as:

• Stability
• Growth
• Exuberence
• Crash
• Recovery

This is a pattern that forms the backdrop of many different financial periods that appeal to stock market historians, such as the great depression of the 1920s, the booming 1950s, the dot com crash in 1999-2000 and the recent exuberance shown in global stock markets since the pandemic.

When a layperson first sees the repetitive series of peaks and troughs on a stock market chart, they may often conclude that these highs and lows are simply a function of greed, ignorance and fear. These human emotions of course play some part in the ups and downs of the long term level of the stock market, but they are not the whole story.

To give humanity some credit, the phases of the stock market are economically predictable and result from the momentum that low interest rates, growing employment and rising consumer confidence provide investors. These indicators tend to build upon each other – each statistic supporting the next, creating a steady stream of good news, rising expectations and soaring stock market prices.

This can only happen for so long, leaving the market vulnerable to a sharp shock that will quickly reverse some of the gains made over the last cycle.

Here’s a short summary of why investors should not view bleak financial times in the markets as a dark period for investors:

Financial planning provides a sense of control and certainty against a backdrop of chaos

By spending your time planning for your financial future, setting budgets, forecasting your savings level in a few years, you can provide a framework around the investment process.

By moving your mindset to a structured way of thinking about money, you will take yourself out of the apparently chaotic present, and into a future where anything is possible. You can almost think of it as financial mindfulness. Any good financial planning adviser can also help you do this.

Investing is exciting, and no more exciting than when markets are volatile

Wise investors understand the difference between gambling and investing. When gambling, an punter is entering into a bad deal that favours the house and will almost inevitably lead to a loss if the gambler continues. Investments work the other way around, with short term losses being possible, but over the long term (10+ years) a gain is the only likely outcome for a diversified investment portfolio.

With this in mind, investors can enjoy the thrills and adrenaline of the stock market and the furious news cycle which accompanies it, sound in the knowledge that ‘it’ll be alright if I keep playing’.

Stock market crashes provide bargains for the long term

If I were to show you an image of the FTSE 100 stock market index over the last 30 years, and asked you to point at the year you wished you could have invested all of your savings, which part of the chart would you pick?

Of course, you would point to a period of massive price corrections, followed by a steady recovery in prices. This pattern would provide any investor bold enough to invest with a huge windfall.

With this simulation in mind, it’s worth applying this to the modern day and remembering that if you invest during crashes and times of great uncertainty, it’s quite likely that you will be investing during a part of the chart that a future version of you may wish they had invested all of their money.

I hope this article has provided you with plenty of mental strength to think more positively about investing during bleak financial times.