It is impossible to predict the timing or severity of the next stock market crash (or temporary market decline as we prefer to call them) with any precision. What we can be confident of is that any temporary market decline (bear market) will be followed by a bull market where the capital markets will resume their permanent advance, successful investors ensure that they are there for the next bull market when it happens, staying invested is the only way to consistently and reliably achieve this.

We should expect a temporary market decline of more than 20% every 5 to 7 years. We plan for this with our clients in advance, we don’t react when the markets get scary. I often talk of ‘lifeboat drills’, we do the lifeboat drills before the storm not during the storm.

We carried out financial lifeboat drills for our clients during our meetings by discussing and preparing for temporary market declines and building their financial plan using reasonable assumptions for long term growth. We do these when they are feeling calm and rational, that is when they should make important decisions about their finances.

When temporary market declines happen, it is inevitable that the media will start producing emotive headlines such as “X BILLION WIPED OFF STOCK MARKET!”, “STOCK MARKETS PLUNGE” or the most dangerous one “THIS TIME IT’S DIFFERENT”. The sophisticated, financially literate and well-disciplined investor blocks this out and ignores the noise, it is the only way to reliably get the returns they deserve.

The global stock market has averaged a return of 9.9% a year since 1994*, you don’t get those type of returns for free, if you are invested into this type of portfolio you need to be able to withstand significant periods of market volatility. Of course, many of you may hold some more defensive assets too, which may reduce any volatility (and likely the long term returns too).

As I find myself repeating often, volatility is the price of admission to the returns of the global stock market. Another way to think of it is this, every single previous bear market is looked at as an opportunity, every future bear market is looked at as a risk.

*based on the average return of the FTSE All-World index (1994 – 2021).

This article is for retail clients and is provided for information and educational purpose only and does not constitute advice.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Best Life Financial Planning Ltd is an appointed representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority.