Markets!!

Almost every time I go out, people ask me what I think will happen in this world of Donald Trump and Brexit, and whether they should cash out of their portfolios and wait till times change. Now I appreciate that there have been a couple of volatile months with world share markets jumping all over the place in response to factors which include a trade war with China and civil disobedience in Hong Kong.

Volatility is nothing new, but it does have the potential to worry inexperienced investors. One morning they wake up and the markets are showing a sea of green – they heave a sigh of relief, and hope that the market is resuming its upward movement. The next morning it’s all red, and immediately they feel sick in the stomach. They groan, “is this going to be the start of another GFC?”

Those emotions are normal and predictable. But they are blown out of proportion by the media. As soon as the market has a couple of bad days we hear,  “it’s a fearful time for those about to retire!” It’s a nonsense statement, but it feeds on the belief that shares are inherently risky, and should be avoided at all cost.

Think about it.  A person who is aged 65 and about to retire with $600,000 in super has pretty good odds of living for another 30 years. Anybody who has studied the history of markets knows there are two certainties: first, the best returns will come from shares; second, anybody investing in shares can expect four negative years out of every 10. This does leave six good ones to take advantage of.

So why is a person about to retire at 65 in a different position to someone aged 75, who is already retired? They both should have many years to look forward to, and they both can expect their portfolios to rise and fall along the way. All that the media’s scare-mongering commentary does is make them lose sleep at night.

Just look at these two examples of newspaper headings. At the start of last year the Financial Reviews headlines were “Market meltdown – investors survival guide.” It’s hard to think of anything scarier.

February 2018:

Yet just 10 months later the headlines were “Market posts best gain in two years.”

28 December 2018:

And then of course we get the worn-out expression, “as a result of market turbulence investors are fleeing to the safe haven of gold.” That’s another nonsense.

The only reason anybody invests in gold is because they believe that its price in the future will be higher than its price today. Maybe it will, maybe it won’t, but as far as I’m concerned investing in gold is a gamble, and the last thing I want to do at my stage in life is to start gambling with my superannuation. For anybody to buy gold, there must be someone who is prepared to sell it: somebody is going to be right, and somebody is going to be wrong. If a punt is what you want, go to the races.

The problem is that too many investors have short memories. In October last year the headlines were: “Shares dive to 12 month low.” Within two months they had changed to the one above as the All Ordinaries hit 5662. At date of writing the All Ordinaries was sitting around 6764, which is a gain of around 20% since October. This is a gain enjoyed by those of us who stick with our portfolios and don’t try to time the market. But many investors missed out again because they were scared off by the fall last October.

Repeatedly I hear words like “I am going to stick with cash till I get a clear sign that the market is on the way up again.” That is a fool’s game. The biggest jumps always come after the biggest fall, and they come suddenly. The secret of investing success is to choose good assets and hang in there for the long term.

 

The 20 Commandments of Wealth

In the Resources section of my website the material available for download includes The 20 Commandments of Wealth which I compiled as an aid to a presentation I was giving to young professionals just out of university. It includes things like:“Keep in mind that income seldom exceeds personal development”
“Becoming wealthy depends more on how you manage your money, then how much you earn.” And
“Ignore the prophets of doom – they are always with this and usually wrong.”
So, my final message for the day is to  stick with the basic principles and don’t try to time the market.

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