Want the secret to surviving the markets? One simple rule – don't panic

Sorry (not sorry)

There’s been feverish speculation over what will be in Labour’s first budget. But if you’re looking for an article with the inside track, this isn’t it.

In fact, at this point, even Rachel Reeves won’t know exactly what she’ll say on 30 October. After the catastrophe that followed Liz Truss/Kwasi Kwarteng’s mini Budget in 2022, any statement has to be signed off by the Office for Budget Responsibility first.

So, no gossip from us, but we’re not sorry to disappoint.

Because in a situation like this, where speculation and rumour often outweigh cold hard facts, is where a financial adviser really adds value. When others are losing their heads, we help make it easier to keep yours.

Why panicking is the absolute worst thing you can do

Uncertainty plays havoc with financial markets. Not knowing what’s happening with government policy – or the worry that bad news is imminent – makes investors nervous. This leads to bouts of volatility as share prices bounce up and down.

It’s not hard to see why some press the panic button. On the face of it, it might seem tempting to take your money out until things simmer down. But this can be counterproductive. Yes, you might avoid periods when the market is falling, but you also risk missing out when they start to rise again. Historically, the market’s best days often come shortly after its worst falls. And, as this chart from Liontrust shows, missing just the 10 best days of the market over a 40-year period would see your investment returns cut in half.

It really is better to sit tight and do nothing.

In order to illustrate this message is a study from Fidelity which shows that the best investors were “either dead or inactive”. This certainly rams the point home! On closer inspection, there’s some doubt whether this survey actually exists, but the fact remains: a fund left untouched isn’t prone to human error. It’s unaffected by all those cognitive biases that hamper us. For example, the temptation to chase losses, picking favourites, or ‘confirmation bias’.

It's these temptations that we as advisers help you to resist.

Five years ago, the International Longevity Centre and Royal London calculated that the value of professional advice was worth up to £47,706.[1] Clients often think we’re here to help guide them on where they should be invested, and of course we do that. But often it’s the work we do around behaviours - helping you resist doing things that might hold you back from being a great investor - that add the most value.

Back to the speculation over Labour’s first budget

Since the election, there’s been no shortage of so-called experts with opinions on what the new government’s financial plans will be. Many have an axe to grind and have adopted an anti-Labour slant. Sir Keir Starmer’s warning of tough times ahead has meant open season, and it can be difficult to separate reasonable assumptions from the hysterical.

For example, we’ve had clients worried Labour will start means-testing their state pension. Others worry they’re about to lose their entitlement to a tax-free lump sum. They’ve asked if they should be making big withdrawals from their pension now while they still can.

Clearly some taxes will go up and it’s important to be prepared. But the only course of action for just now is (once again!) to sit tight until we know for sure what will happen. It’s important to not allow ourselves to listen to what’s merely conjecture and make rash decisions that will make us worse off in the long run. The truth is, we really don’t know what will happen until 30th October.

Until then, don’t panic, sit tight and hold. With concrete information, we can tweak your plans if necessary and make sure you’re still set up to be tax efficient (although it’s worth noting that even if there was a surprise announcement about tax-free cash, this would take years to action).

But the main value of having a financial adviser is helping support you when doing nothing can seem like the scariest thing in the world.

Source: What it’s worth, revisiting the value of financial advice. Those receiving professional financial advice between 2001 and 2006 saw a boost to wealth (in pensions and financial assets) of £47,706 in 2014/16.