Navigating Uncertainty
Uncertainty is a constant. Whether it’s in our own lives or the world at large, we are always facing varying levels of uncertainty. It’s therefore only natural that our decision-making is strongly influenced by how certain or uncertain we feel.
During turbulent times, market downturns and periods of increased uncertainty, we tend to throw our hands in the air, procrastinate or make impulsive decisions.
Instead we should get on the front foot. This is particularly true when making decisions from an investment or financial product perspective. Our decisions need to be well informed rather than influenced or based on gut feel. If we are proactive, whether making decisions in perfect market conditions or during a period of absolute uncertainty, our prospects for success will be greatly enhanced in the long run.
How to Deal with Uncertainty
- Accept that you can’t accurately predict or control any level of market uncertainty.
- Don’t procrastinate during uncertain times by obsessing about what can go wrong.
- Remember that the world has faced market uncertainty before and has recovered.
- Get motivated, get organised, stay informed and keep moving.
- Learn more about financial products – particularly those in your portfolio – so you can make informed decisions about future possibilities.
The Four Levels of Market Uncertainty
Positive and Stable Conditions
During a Level 1 period, conditions are ideal. Therefore, a single forecast method can be applied to any investment strategy and uncertainty becomes irrelevant. Examples include allocating part of your portfolio to and/or participation in capital guaranteed investments inclusive of certain life insurance products.
Possible Future Change
Level 2 uncertainty is where conditions (such as legislative changes) make it difficult to accurately identify outcomes until the event occurs. Long-term forecasts can’t be accurately gauged but outcomes after the change occurs can be predicted with some certainty.
An example is when a market is facing potential legislative change – such as negative gearing. Investors and experts cannot accurately predict a change but they can use market research, with some level of certainty, to develop predictive scenarios as to how the market will respond following the change.
New Ventures and Changing Trends
Level 3 uncertainty typically applies to a new product or venture where limited or no scenarios are available for analysis. Level 3 strategies can be referred to “as an art rather than a science” and can potentially result in high low returns – or even the complete loss of invested capital. An example of this is the debate over whether motor vehicles will move from combustion power to other power sources such as electric or hydrogen.
When assessing a Level 3 scenario, be aware that residual uncertainty will remain high and investments you make in new or unproven ventures should represent only a small portion of your portfolio.
Total Uncertainty
Level 4 situations are rare. They are periods when it is impossible to identify any potential outcomes. As Level 4 scenarios are never permanent, it is important to remember that “total uncertainty” will eventually be replaced by “positive and stable conditions”. During these periods, one should avoid impulsive actions or knee jerk reactions driven by external influences such as the media.
Those who are well prepared and knowledgeable can confidently sit and wait for positive and stable conditions to return. If you’re not prepared, just take this time to get organised.
Our Strategy for Managing and Overcoming Uncertainty
Returns, no matter the level of uncertainty, will always be improved by remaining well informed. Remember these key points:
Don’t panic and stay positive
Accept that you can’t accurately predict or control market uncertainty. You can only prepare for it. During periods of high uncertainty, don’t try to analyse how things can go wrong. Instead stay positive, accepting that uncertainty is always with us at varying levels.
Learn more and get informed advice
By understanding more about financial products, you will be better positioned to make informed decisions that will improve your future position. Get motivated, get organised, ignore outside influences and only take informed advice from a qualified expert who can undertake regular reviews of your financial portfolio to identify potential savings.
Understand what changes need to be made
This expert can also assist you to itemise your financial portfolio to provide clear advice on what changes need to be made to improve your financial position. To navigate through the fog of uncertainty, choose an advisor that has appropriate independent research and education tools available to assist you to make good decisions about financial products, including superannuation, life insurance, finance facilities and investments.
It’s time to speak with an expert
Whatever the level of uncertainty, consolidating life insurances, superannuation and other financial and investment products can deliver significant savings in administrative costs. Otherwise these expenses will eat away at your investment base every day.
Regardless of the level of uncertainty, it is important to consult a suitably qualified expert who will assist you to achieve the following outcomes:
- Improve your capacity to quickly take advantage of investment conditions – particularly during a Level 4 period – as these uncertain conditions will inevitably improve.
- Improve your understanding of how financial products actually work, including what options are available for getting general or personal advice.
- Improve your financial returns by undertaking a forensic review or health check of your entire financial portfolio.
“If you put off everything till you’re sure of it, you will never get anything done” Norman Vincent Peale
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Contact Australian Advisor Collective for access to our network of Property and Financial Advisors:
- Australian Advisor Collective Pty Ltd
- ACN 626 468 166
- ABN 37 626 468 166
- AFSL 511679
- Post Office 706 South Perth WA 6951
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