Marking another calendar year provides an opportunity to reflect on several lessons, not the least of which is the difficulty of investing based on past performance.

In early 2023, financial headlines were dominated by inflation, the odds of a global recession and the likely path of central banks’ interest rate decisions. Also in focus through the year were geopolitical strains, US regional banking instability, the forced merger of Credit Suisse with UBS, speculation about the implications of artificial intelligence for investing, tensions in the Middle East following the Hamas-led attack on Israel and the economy generally.[i]

Despite all those events, equity markets globally had a solid year. In the US, the Dow Jones index jumped up 13.7%, and the Nasdaq index 43.4%. European markets like Germany’s DAX, the French CAC 40 and British FTSE100 saw a similar trend, with some Asian markets like Japan’s Nikkei benchmark and India’s BSE Sensex making positive leaps as well.[ii] Not every market globally performed well, which is to be expected – and highlights the need for globally diversified investments.

New Zealand proved to be a laggard, extending the already 2-year underperformance of its global stock market peers.  Some pundits have put this down to the election year uncertainty, culminating in the defeat of the 6th Labour Government.[iii]

As at 28 Dec, the last full trading day of the year, the top 50 had risen nearly 2.5% for the year, and the S&P / NZX All Index was up 3.4% for the year.

There were definitely winners and losers, with the top decliners being Pacific Edge down nearly 79%, Me Today vitamins nearly 78%, Synlait Milk down 73.7% and TradeWindow down 65.5%.

Then of course, infamously volatile A2 Milk declined 38%. The Warehouse was close behind at 35.6%. Another case of buyer beware going for labels – even well-known brands have their day (or year) on the sharemarkets.[iv] [v]

The lessons we can draw from all of this are evergreen, but are worth reinforcing:

1. Investing via forecasts is not effective. While many predictions are well-reasoned, they really should be thought of as lower- or upper-bound assumptions. In truth, every forecast comes with a lot of noise, meaning no one is better than another.
    

2. Diversification is your friend. Diversifying lessens concentration risk, allowing an investor to hold more than the Australian banks and miners. Investment opportunities exist around the globe, exposing your portfolio to thousands of companies, dozens of industries, and countries. Put another way, a globally diversified portfolio positions investors to capture higher returns where they appear.
    

3. Markets are tough to outguess. While AI offers enormous efficiency benefits for business, it is far less likely to successfully predict changes within complex systems as dynamic as stock and bond markets. Indeed, by absorbing news instantly and updating prices in real time, the market can be thought of as the world’s largest information processing machine.
    

Markets reward discipline. Look beyond headlines and stick with your agreed plan. News and financial commentary can influence people’s view of investing. Without a strong investment philosophy to guide them, people may be tempted to change course, especially if the “insight” promises a fast, easy return. But growing wealth has no shortcuts. Success requires a solid investment approach, a long-term perspective, and discipline to stay the course.[vi]

Engaging a trusted, local fiduciary can help you navigate on your financial journey, by sitting down for a face-to-face chat to determine your unique situation and goals. They can help you navigate long-term commitment to your financial future while providing sound counsel, no matter what the headlines are saying.

by Nick Stewart (CEO and Financial Adviser at Stewart Group)

·        Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 338.

·        This article was written with support from Dimensional Fund Advisors. 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 a 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

[i] https://www.hrw.org/news/2023/10/18/israel/palestine-videos-hamas-led-attacks-verified

[ii] https://www.businesstoday.in/markets/story/global-market-performance-heres-how-global-equity-markets-major-currencies-performed-in-2023-411391-2023-12-31

[iii]https://businessdesk.co.nz/article/markets/nz-market-dips-as-election-looms

[iv] https://www.newshub.co.nz/home/money/2022/06/stocks-drop-as-nzx-dips-to-its-lowest-level-in-two-years.html

[v] 384795.pdf (nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com)

[vi] http://elink.dimensional.com/m/1/62855187/02-b23353-9fc9d5c47d024ffd80d4fef1d81d1595/1/377/31021f92-3ad0-4709-9062-a9111a86e61e