Give yourself the best chance to increase your wealth in the decade ahead!
It’s that time of year. When everyone starts talking about what will happen next year. Banks. Brokers. Economists. Lunatic gold newsletter salesmen on YouTube. They’ve all got an opinion. The media goes on holidays while those left manning the fort get extra lazy. We’re all subjected to unfiltered astrology calls on financial markets.
The turn of this year into next is more heightened than most. It’s also a new decade. If you think forecasting a year ahead is an unreliable and impossible task, imagine extending such brazenness out to ten years. Then imagine publicly putting your name to such stuff. Many do, safe in the knowledge few will ever remember.
Some will want to get clever. Those running investment funds where a belief in stocking picking and forecasting is the way to riches (mostly theirs) will proclaim there will be sectors to avoid. You’ll need to be selective they say. Translated: you’ll need them to be selective for you.
Others will offer a pro forma response. They’ll average out market returns for the past ten, twenty, thirty, fifty, one hundred years. Arguably you can’t do much wrong if you don’t stray from averages of the past. Several well-known bank economists quote almost the same expected return every year. Might as well hug history. Looking back can be instructive, so let’s look back.
The 1980’s had an ominous call for investors to shake off. This decade started a few months after one of the most famous magazine covers in investment history. Businessweek’s—the ancestor of Bloomberg Businessweek— ‘The Death of Equities’ published in August 1979.
“The Death of Equities” captured what a lot of people on Wall Street were saying at the time, related to the inflation issue of the day in the global markets. Stocks were not performing well against inflation. The winning investments were gold, stamps(!), diamonds, and single-family houses. Individual investors were bailing out—7 million fewer shareholders in 1979 than there had been in 1970. And companies were buying back shares.
Almost three years to the day after that cover story ran, the stock market hit bottom with inflation at double digits and then by 1983 the spectacular bull market of the 1980s took off. The total return on the Standard & Poor’s 500-stock index since its 1982 low, with dividends reinvested, has been nearly 7,000%. Not bad for a corpse.
In an article by Peter Coy published in Bloomberg, he says: We’re still getting grief for a cover story that appeared in BusinessWeek (Now Bloomberg Businessweek) four decades ago. An article has to remain correct only from the time it’s written until the time it reaches readers. After that, it’s like a fledgling bird that has flown from the nest. It’s on its own. If financial journalists could truly see the future, we wouldn’t be typing for a living. We’d be on an island somewhere!
The 1990’s had an even more ominous call to deal with than the death of equities. In 1987 economist Ravi Batra entered the New York Times number one bestseller list with a book titled ‘The Great Depression of 1990’. Originally published in 1985 under the title ‘Regular Cycles of Money, Inflation, Regulation and Depressions’, it’s obvious why the first print run didn’t capture anyone’s imagination.
No great depression, but recession did bite in the early 90’s across the West. This meant the 90’s had a similar start to the 80’s. Share market investors spent the first three years of the decade stuck in the mud. After that it was off to the races again.
Adherents of Batra’s book can still be found howling “he only got the date wrong”. That speaks for itself.
The 2000’s proved sometimes the nonsense calls aren’t all doom and gloom. To coincide with the new century, investment strategist Charles Kadlec released ‘Dow 100,000: Fact or Fiction’. His conclusion was the US Dow Jones Index would reach 100,000 points by 2020. It’s currently 71,000 points short.
Finally, our current decade. Memories of 2008 hung around. Several pundits used that fear to perpetually wind up about the next disaster. 2008 was just the entrée they said. Not so. The 2010’s never reached the great heights of the previous decades. Nor did it offer as many painful moments.
What can we learn from this? It’s a small sample size, sliced into arbitrary time frames. Mostly it’s a history lesson. Four decades is a long time in anyone’s lifetime. There are always arguments to abandon financial markets, but the alternatives are never convincing.
The are no guarantees. The ride will likely be rough, avoid home bias, diversify with foreign equities, include a couple of other asset classes, and an investor gives themselves the best chance to increase their wealth in the decade ahead.
This article is prepared in partnership with Mancell Financial Group, Australia. The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
