Let’s have a look at the performance of three different portfolios, Portfolio A, Portfolio B and Portfolio C.

The question for you is: which portfolio would you like?

I imagine all of you will choose C? as it is the only one going up.

The catch with this question is that A, B and C are all the same portfolio. They are the same portfolio over different time frames. If you look at your portfolio frequently enough you will see A, B and C at different points throughout your lifetime.

The interesting thing is that when we look at our wealth, we are far more impacted by the falls in value than we are by a corresponding gain. In other words, if you start with £100, experienced a market fall that left you with £90 after that fall, then experienced a market rebound and had £100 after the rebound, even though you have ended up exactly where you started, emotionally it is likely you will feel that you have made a loss. On average people feel the pain of a loss about twice as strongly as the positive feeling from an equivalent gain.

Let us look at 2020, it should still be fresh enough in our minds. In 2020 there were 253 days of trading in markets. If we treat 2020 as an average year, we see 114 days (45%) return a loss, i.e., you ended the day with less than you started. The effect of looking frequently at your portfolio is that you may well feel each of those 114 losses far more than the 139 wins and often it will feel like you are losing money. The effect of seeing your consistent losses can sometimes lead to the desire to take your money out of markets, cut your losses and run.

In 2020, many investors will have done something akin to this after the, approximate, 20% drop in markets across March through to May. Those investors who stayed away from markets then missed out on the gains that were made over the rest of the year.

An investor who started the year with £100 and took their money out in May would have ended the year 20% down with £80. For those who were able to stay calm and stay in their investing seats the markets would have returned 13.2% (based on MSCI ACWI) i.e., they’d have finished the year with £113.20.

Frequently consulting a portfolio valuation can erode confidence in your portfolio, over time this can concern investors, leading them to sell in times of market downturn. View your portfolio sparingly, viewing it regularly is not going to make markets go up. When market crashes occur, have confidence in your portfolio, if you can hold for long enough it will likely recover.

Patrick Christie
Financial Planner – WealthFlow
patrick.christie@wealthflow.com

This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated. Errors and omissions excepted.

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WealthFlow Group Ltd. Registered in Scotland No SC635011. Registered Office: 10 Charlotte Square, Edinburgh EH2 4DR.

Head Office & Consulting Rooms: 10 Charlotte Square, Edinburgh EH2 4DR.

Mail correspondence to our Central Scotland Admin Hub: WealthFlow Group Limited, PO Box 14947, Grangemouth FK3 3AU.

WealthFlow Group Ltd is authorised and regulated by the Financial Conduct Authority.

The guidance/advice contained in this website is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK.

For your protection, unresolved complaints can be referred to the Financial Ombudsman Service.

To contact the Financial Ombudsman Service, please visit www.financial-ombudsman.org.uk.

WealthFlow Group Ltd. Registered in Scotland No SC635011. Registered Office: 10 Charlotte Square, Edinburgh EH2 4DR.