Managing markets' complexity with rationality: why the long-term view pays off

As we reach the halfway point of 2022, it feels like a good time for me to check in to keep our clients up to speed with all things Moneyfarm.

The first six months of the year have been tough - the S&P 500’s worst H1 performance since 1970 - and an outlier after what has been a decade of relatively consistent growth despite some rocky patches. In 2022, a few strands of history and economics have come to a head. While some of these factors - the war in Ukraine, rising inflation, global supply and trade issues- have been shocks, others have been brewing in the background for some time. Central banks and monetary policy helped keeping the system together, alleviating some critical issues, but after the longest bull markets of all time, a phase of readjustment was to be expected.

Should we be concerned as investors? Not in the long term.?

Markets are fundamentally cyclical and periods of volatility are just as much a part of investing as prolonged periods of growth. Markets always overshoot and they have already corrected significantly, discounting a lot of future bad news. It is also worth noting that we are still in a situation of record employment and positive economic growth. For instance, analysts are still predicting 5.5% revenue growth in 2022 on Eurostoxx, the main European index.?

Having said that, seeing volatility in the portfolios is never pleasant and the economic situation may be rocky for some time.?

In the first quarter we reduced the risk in the portfolios, a move that appears to have paid off since we have been able to (at least partially) mitigate the negative impact of the markets. Just to give you some references, while Nasdaq lost 30% since the start of the year and the S&P 500 has lost 20%, our portfolios have not even come close to such loss levels. We could have done more, but that is always the case with the benefit of hindsight. However, we are satisfied with our globally diversified and conservative position, which allows us to have enough flexibility. We should always remember that when making a change to portfolios, you have to be right twice - when you sell and when you buy back. Sometimes in uncertain environments, not making decisions is the best decision.

Another important part we play as a wealth manager is to help investors take an objective perspective on complex situations like the one we are living because acting on impulse almost never pays off when investing.?

Selling in difficult periods risks crystallising losses and ensuring that investors miss out on the recovery when it does arrive. The situation will improve and there is plenty of room for growth when it does. For now we will continue working on managing the portfolios by employing our investment philosophy based on following the macro-economic themes, diversification, and long-term perspective. We are also working on improving our service; indeed, after our addition of Socially Responsible Portfolios and Junior ISA, we are going to increase our range of investment solutions to give Moneyfarm clients even more options (more information on this will be shared in the coming months). We have also welcomed on board our new clients from Wealthsimple following our acquisition towards the end of 2021.

We hope that despite the difficult situation you are enjoying Moneyfarm’s service, and we look forward to getting to know you as you spend more time with us as things improve.

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