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Lessons from a multi-decade investment career

How markets and retirement planning have changed.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Investment has a bit of science in it, a bit of luck, and by the time you are near finishing your career, a great deal of experience. But you are always learning.

Four decades in markets

Certainly my bit of luck was starting 38 years ago, when the bull market had just got going. The preceding 17 odd years had seen the markets all over the place. Debt had mainly been wiped out by double digit inflation which had revised both shares and bonds.

I can remember buying some clients 10-year US Treasury Bonds at near 15% yields. The S&P yielded over 5% and was on a price-to-earnings ratio of 7.5 times.

Basically assets were cheap, and so started arguably the greatest bull market of all time.

Yes there have been cyclical bear markets within this, but all were just great buying opportunities with hindsight. That includes 1987, which saw Wall Street lose over 22% in one day. That’s a points fall today of over 5,000! Many of us thought at the time that our financial careers were over.

It taught me an important lesson though. Having a cash savings buffer gives you peace of mind.

Ever since 1987 I have told investors never to underestimate the need for a rainy-day fund, and to have a bigger amount than they think they will need. This year has shown its importance.

What I have learned about saving for the future

The biggest change since I started has been to people’s pensions.

The prevailing view was to aim for two thirds of your final salary, but then most in those days had final salary schemes.

There is little or no chance of doing that today. Final salary schemes have been abandoned by all but the public sector because of cost. Making private provision is not easy and your final accumulated sum is capped, if you can get there at all.

The onus on making these provisions has fallen on the investor.

Pension freedoms have also meant that it’s up to you to make your pension pot last. It’s no easy feat given the challenges I see around us today. It was always part of financial planning, that as you grew older towards and into retirement, you’d de-risk your portfolio.

Pension freedoms and drawdown have effectively reversed this. Today’s near retirees and retired are taking unprecedented risks compared to my parents’ generation. This is at a time when interest rates are at historic lows, and most financial assets are expensive compared to when I first started.

Take advantage of market falls

A word to the young. Us baby boomers were once your age after all.

I think it’s very tough, and the pandemic hasn’t helped you. But not saving, investing and sticking your head in the sand is no answer either.

For you with perhaps 30-40 years before retirement, you have time. Don’t waste it. Just putting a small amount away to begin with makes a big difference.

You have one great advantage over us oldies. You have yet to accumulate much capital. Stock market falls are an advantage to you, by investing sums monthly you will automatically buy cheaper units and shares when the market falls.

A big, even prolonged fall could mean you are buying assets cheaply, which will hopefully account for greater gains when markets eventually move forward – even if it is extremely uncomfortable to watch your investments fall in value over the short term. It’s important to focus on the long-term, although nothing is guaranteed.

What next for stock markets?

Lots of you will have read my views on the prevailing investment climate. But a quick recap. We’ve had a 40-year bull market, and I think it’s going to come to an end. Possibly even this year.

First, I think we are led further up by the US. But Covid-19 has been a catalyst to many of the underlying global problems that have been allowed to build up over this long bull market. Not least $250 trillion of global debt.

Add advancing technology and ageing demographics and I think you have a recipe for deflation and potentially a big market fall, certainly greater than March. Central Banks and governments will do all they can to stop it, but I think this will then sow the seeds of double digit inflation later in this decade.

This is not to say we shouldn’t be in the markets in some way. We know we have to make provisions for ourselves, but failing to properly manage our portfolios could be equally as costly for our financial futures.

This decade will be very different for investing than the last four have been. Both deflation and inflation will require a completely different asset mix. For my generation it will be more about preserving the purchasing power of your money, rather than aggressively trying to make more.

Of course, you should take all forecasts with a pinch of salt, including my own. And as ever, if you are unsure whether a particular investment is right for you, or need help working out what you should be aiming for, have a chat with a professional adviser.

There are always so many different themes and factors that throw out events and their timing. But it’s hard not to reflect that the early 1980s was a very different starting point for investing than today.

What’s next for me?

Just like with investing, timing big decisions is never easy.

As you grow older your priorities obviously start to change. I now have two granddaughters, while they are both very young (and exhausting being 3 years old and 19 months respectively) it’s good to spend more time with them.

I am also conscious that we don’t live forever. Last year my best friend died suddenly at only 55, which is why I think this a good time to leave my full-time role at HL.

It’s been an incredible journey, and I wouldn’t have missed it for the world.

I think I’ve given you some feel for what we might expect in the markets, and I’ll be back from time-to-time to share my thoughts with you all.

To those of a similar age I will sign off as the duty sergeant did in Hill Street Blues: “Let’s be careful out there”.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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