by Dan Atkinson
This weekend I read Goldilocks and the Three Bears to my three-year old daughter. As you know, Goldilocks is a generally presented as a sweet innocent girl – who happens to be a terrible thief and vandal! She enters the house of a family of bears, has her fill of porridge, breaks a chair, and ends up caught sleeping in Daddy Bear's bed! If we step back, we know that stealing from a family of bears is probably a bad idea. But hey, porridge is irresistible.
We've seen this temptation scheme play out in markets recently, haven't we? Just as Goldilocks trying unsatisfactory porridge was displeasing but not dangerous, in the short term we saw prices go up and down a bit in the market. There were consequences, sure, but they weren't disturbing, and volatility remained unusually low.
However, like Goldilocks found her abnormal behaviour normal, so too did we get accustomed to ultra-low volatility. While the long-term trend is for equity markets to go up, a normal trend would have been for greater fluctuation in values than we have seen. Therefore, we should not have been surprised that temporary falls occurred - even big ones.
Goldilocks allowed her hunger to steal from bears - a risky endeavour. Arguably she should have weighed up the potential consequences of stealing from a family of bears, but in the moment her hunger mattered most.
Unlike Goldilocks, when we take investing risks, we need to ask ourselves why. What is it that motivates our clients that means they should take risks? If we can hold these longer-term goals in mind, we can use them as the benchmark for measuring success - not markets.
There is one last thought to draw from Goldilocks and the Three Bears. Greed. Had Goldilocks left the bear's home after her porridge, she wouldn't have broken the chair or been caught by Daddy Bear. She would have satisfied her hunger. However, she was greedy and wanted to rest in the market despite having achieved what she wanted. As a result, she was nearly eaten and would have lost the satisfaction that she had achieved. Watch out for motivation turning you from goals to greed.
Goldilocks was hungry. She smelt food. She ate it. Broke a child's chair whilst she rested. Slept in a rather dangerous place. Was awoken by the owner. And in most storybooks (except perhaps the more gruesome ones) lived to see another day. Similarly, most of our clients will survive downmarket years, so long as we lead them down the right path.
Dan's degree Music Technology degree helps him approach Financial Planning problems creatively. He is both a Chartered Financial Planner and a Fellow of the Personal Finance Society (PFS). Dan is an Accredited Paraplanner™ with CISI and is working towards the Certified Financial Planner™ certification. He is head of technical at Paradigm Norton and Chairman of the CISI Paraplanner Interest Group. Having won several awards in his field, Dan continues to work with CISI and other organisations to support others involved in this area of Financial Planning by writing articles, and hosting conferences and events. Outside of the office Dan is married to Hannah and has a young daughter who keeps him on his toes. He is also involved in his local Church in Hatfield. Follow him here
