Money Matters
Issue 44

June 2022 / July 2022

Markets and investors have had it tough in the first half of the year. With central banks across the world fighting inflation, global equity and bond markets have been under severe pressure. The S&P has suffered its worst half since 1970. Back home, we continue to be plagued by load shedding and politics.

Naturally investors start to feel anxious and that they need to be doing something. So what should you, the investor, be doing? Quite simply – absolutely nothing. The biggest mistake one could make at a time like this is to transfer from equity assets to cash. Despite the short term pain experienced from volatile equity markets, particularly when compared to the sure bet which is cash – it has proven time and time again that staying invested in equities will over the longer term provide returns far superior to those of cash.

Please be assured that our investment managers are taking advantage of any opportunities that arise from discounted prices. Provided your investment strategy has not changed, there is no need for you to act.

Unless you have clairvoyant skills to time markets, over the long term you will be worse off if you sell out of the stock market, than if you had simply stayed the course.

In the words of Bill Bachrach:

“no external event is the determining factor of financial success or failure. The determining factor was, is today and will always be, the choices made before, during and after these events.”

If you are unsure of anything, remember that the Stone Wealth Management team is just a phone call away.

Linda Stonier

For once, it’s not just us. Across the world, inflation is rampant, gas prices are rocketing, food prices are soaring and the cost of living is driving many further into debt. The war in Ukraine plus overzealous Chinese lockdowns have also not helped. Central banks expected inflation, but Ukraine and China exacerbated the situation, and now central banks are playing catch-up. There’s a whiff of panic in the air. This hasn’t gone unnoticed by markets. Everything’s been smashed. Equities, bonds, tech, crypto, over-leveraged traders, Russia, China, NFTs, SPACs – everybody has been impacted – And there’s nowhere to hide.

Painful as it is, this is not unusual. This is what markets do sometimes, and ironically, it can be good for markets as it cleans out the system. There’s good news and bad news. The good news is that no financial asset goes up or down forever. So, things will stabilise and eventually revert to fair value. The bad news is it may take a while. The two primary drivers of where we find ourselves are showing no signs of abating.

Putin – Ukraine
With no clear honourable exit for Vladimir Putin in Ukraine, this could grind on for a while. Things have not gone his way. He envisaged a quick victory, installing a Moscow-friendly regime. He knew there’d be sanctions, but he thought the end justified the means. He believed his people could cope with hard times; they certainly can’t really complain or threaten him electorally as they could in a Western democracy. A maximum of five years of hardship, and then the world would move on and focus on something else – or so he thought. Instead, he got a spirited fightback from Ukrainian forces and a drawn-out campaign, while from a sanctions perspective, Russia is being removed from the planet piece by piece.

China’s overreaction to COVID
Meanwhile, China’s extreme overreaction to COVID and the resultant lockdowns are wreaking havoc on supply chains and growth across the planet. Fortunately, numbers are coming down, so lockdowns are being loosened. However, it is clear that over-vigilance seems to be Xi Jinping’s strategy going forward. He’s not backing down, and this approach will continue to constrain growth and drive inflation.

There are two elements to every financial plan.
The first order decision is concerned with finding the right direction. This is the strategy: it answers the “what” and “why” questions. Thinking deeply about what is important to you and what you want to achieve is crucial. Understanding the “why” is important in connecting to your vision at an emotional level. An emotional connection to what you truly value gives you the staying power in the face of challenges.

The second order decision is just as important: it answers the “how” to get you there. Having a clear understanding and commitment to what you want to achieve means very little if you do not have a clear process to achieve it. Knowing “what” is most important to you and “why” is powerful. Once you have intentionally established a clear goal you need to become process focused.

The goal is your intention. The goal is just the destination. Understanding where you are and where you want to be guides the process you need to commit to in order to close the gap. What is the process of small actions that you need to commit to continuously on your way to your goal?