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What should we focus on?

25 Jan 2019

What should we focus on; what can we ignore? What can we control; what can’t we control?

You had a lovely summer break and are still in ‘holiday’ mode. You heard before Christmas that investment markets had taken a beating, but you were busy prior to Christmas so you didn’t take much notice.

Congratulations!

You did well to ignore the noise, of which there has been plenty recently.

When you accept that you can’t control markets you are unworried by them. If we choose to be in volatile markets, we must learn to live with the volatility. We expect it. We welcome it. It is par for the course.

It is not that world events of the type we have been seeing recently are not important, they are. They are riveting in their dramatic twists and turns and demand to be thought about and discussed. It is just that we can’t control markets and one mustn’t worry about things one can’t control. Worry about the things we can control: like diversification, communicating with each other and your family, communicating with your advisers, putting plans down on paper, reviewing your plans, etc. Boring stuff! But it is the stuff long-term success is made of.

As Jim Parker says in his latest article which I have a link to below, “Why not leave the markets to do your worrying for you.”

Given that you probably haven’t checked your portfolio balance for a long time, here is what has happened recently, in a nutshell -

  • Britain has failed to secure a Brexit deal with the European Union (problems at the Irish border seem unavoidable)
  • The trade war Trump started with China has reduced growth in several of the world’s biggest economies
  • The Trump shutdown of the government in the US is having an impact on that nation’s economic growth
  • There are fears about the profitability of some large US companies, especially tech companies, as they report their earnings for the previous year and provide guidance about their expectations for the coming year
  • The US Federal Reserve raised interest rates again to 2.5% and continued selling bonds in the open market by the billions thereby soaking up large amounts of ready cash from the economy. This is the unwinding of the infamous ‘quantitative easing’ that we heard so much about in previous years.

In other words, uncertainty. There is one thing markets hate - uncertainty.

The pressure had been building for some months (in people’s minds) and on 3 October 2018 sceptical investors around the world decided to sell some of their shares. Sellers out-numbered buyers and so prices of shares had to fall to accommodate the reluctant buyers. This bought more nervous sellers into the market and we had a bit of a rout. In the nearly 3 months up to Christmas Eve share markets fell –

  • In the US, down by 20%
  • In New Zealand, down by 7%
  • In Australia, down by 11%

From Christmas Eve to 18 January 2019 the direction of markets has been all one way, upwards –

  • In the US, up by 14%
  • In New Zealand, up by 4%
  • In Australia, up by 7%

A typical 70% growth portfolio fell 10.5% from 31 September 2018 to Christmas Eve 2018. Since then it has risen 4.6% (to 18 January 2019).

Obviously, the environment is still uncertain and there will be surprises, both good and bad, as the future unfolds.

And if you are worried, don’t hesitate to contact your adviser to talk it through. Ask questions as there is no such thing as a stupid question and keep asking until you are happy.

Jim Parker, of Dimensional Fund Advisors, has written an interesting article on this topic and you can read it here.

Jared, Shiree, Lisa and Rhodes