When investment markets reach new highs, an interesting thing happens.

Instead of feeling reassured, many investors start to feel nervous.

“Surely it can’t keep going up?”

“Have I missed the opportunity?”

“Should I take some money off the table while markets are high?”

It is understandable.

When something has risen significantly, our instinct can be to assume that it must soon fall.

But investing rarely works quite that neatly.

A record high doesn’t necessarily mean a market is about to fall

One of the interesting points made in a recent Spilled Coffee article, Don’t Fight a Bull Market, is that new market highs are not particularly unusual during periods when markets are rising.

In fact, repeated new highs are part of what creates a bull market in the first place.

Of course, markets will fall again at some point.

Corrections are a normal feature of investing and no bull market continues indefinitely.

But the fact that markets have already risen does not, by itself, tell us when the next fall will happen.

And that creates one of the biggest challenges investors face.

Trying to predict the top

Imagine markets reach a record high and you decide:

“I’m going to sell now and invest again once things calm down.”

That sounds perfectly reasonable.

Except you now have two decisions to get right.

You need to know when to get out.

And then you need to know when to get back in.

The second decision can be even harder than the first.

If markets continue rising, do you invest again at an even higher price?

If they fall 5%, do you go back in or wait for 10%?

If they fall 15%, does that feel like an opportunity or does the news suddenly make you frightened that they could fall further?

Before long, what began as an investment decision has become an exercise in predicting short-term market movements.

And nobody can consistently know what markets will do next.

Your Financial Plan shouldn’t depend on predicting markets

This is where Financial Planning becomes important.

Rather than asking:

“What will markets do next?”

a better question might be:

“Does my Financial Plan still work if markets don’t behave exactly as I hope?”

At Alexandra’s, we spend a lot of time looking at the bigger picture.

What are you trying to achieve?

When might you need your money?

How much risk do you genuinely need to take?

How much cash should you keep outside your investments?

What happens to your plans if markets fall?

Could you still retire when you want to?

Could you still take the holidays, help your children or grandchildren, or enjoy the lifestyle you’ve planned?

These questions are usually far more important than where a stock-market index happens to be today.

Sometimes the biggest risk is reacting to the noise

When markets fall sharply, investors can become fearful.

When markets rise strongly, investors can become fearful for a completely different reason.

Either emotion can encourage us to make changes that weren’t part of the original plan.

Investing is about having a structure around your decision-making and not just about stock picking.

A good Financial Plan gives you something against which to judge what is happening.

Instead of responding to every headline, market high or market correction, you can ask whether anything has genuinely changed in your circumstances, objectives or long-term plan.

If the answer is no, sometimes the best decision is simply to carry on.

Focus on what you can control

Nobody knows where markets will be next month or next year.

What you can control is much more important.

You can control how much you save.

You can control how diversified your investments are.

You can control how much risk you take.

You can control how much cash you retain for shorter-term spending.

You can regularly review whether your investments remain appropriate for what you’re trying to achieve.

And, perhaps most importantly, you can have a Financial Plan designed to cope with the fact that markets will inevitably have good years and bad ones.

Successful Financial Planning helps you prepare for the future. It is not about predicting it.

Are you wondering whether recent market movements should change your plans?

If record market highs, investment performance or uncertainty about what happens next have left you questioning your current strategy, speak to us.

We can help you look beyond today’s market headlines and understand whether your investments remain aligned with the things you actually want your money to achieve.

Get in touch with the Alexandra’s team to start a conversation about your Financial Plan.

The value of investments can fall as well as rise and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

Source / further reading: Eric Soda, Don’t Fight a Bull Market, Spilled Coffee: https://www.spilledcoffee.co/p/dont-fight-a-bull-market