There is little love to be found in any financial or business headlines lately.
Profits are down year on year for household name companies. Air New Zealand is down 38%[i] compared to the same period last year; Genesis has reported a 32% profit drop in the last six months to December.[ii] The Warehouse Group just sold Torpedo7 to Tahua for $1 in a bid to focus its energy on core business, which was down 6.7% across divisions at last reporting.[iii] Fletcher Building investors have scrambled to dump shares after the company announced a first-half loss, and the impending exit of CEO Ross Taylor and Chairman Bruce Hassall.[iv] Even those reporting the headlines aren’t exempt, with Warner Bros Discovery announcing the closure of Newshub in an all-hands meeting just this week.[v]
The RBNZ has indicated the OCR is likely to stay at 5.5% through to at least the June quarter of 2025, forecasting a downward trend for inflation. It’s unlikely to reach the sweet spot of 2% inflation until the December quarter of 2025.[vi] At the grocery store we are still seeing the impact of Cyclone Gabrielle on growers, the drag of other inflationary pressures, and the lack of competition between our major supermarket chains.[vii]
It feels like a flood of bad news at the moment. And yet – globally, the data isn’t all bad, some is surprisingly good. The NASDAQ, S&P and DOW are all up in the year-to-date. In their respective currencies at the time of writing, the NZX50 is up a mere 0.10% on the back of less-than-stellar company results. By comparison the top US 500 listed companies by size, the S&P500, has delivered a 7.23% positive return.
So, how can everything be so grim locally when the big picture is just… business as usual? Should you be worried about the performance of your investments with so many NZ stalwarts reporting negative news?
Short answer? No. Not if you have a globally diversified, robust portfolio.
It can be nerve-wracking to see numbers like what we are seeing in NZ now, but it is important to keep two things in mind: Firstly, that NZ is comparatively a minnow in a sea of giants. If we compare NZ to the USA, we can see that the NZX 50 sits at 0.1% of the world market by capitalisation whereas the S&P500 sits at 59%.[viii] What happens in NZ is unlikely to greatly impact the global markets, as painful as our current economic struggles are to us locals.
Secondly, what the markets are doing day to day – globally and locally – is of much less concern to savvy investors than their overall, long-term strategy for investment.
If you back out when things start going downhill, you risk permanently losing both momentum and money. Knee-jerk withdrawals when markets are down have seen many locking in what were until that moment paper losses. We saw it happen in 2008 when the GFC hit, and again in March 2020 when panic set in due to the onset of the COVID-19 pandemic.[ix]
Investors who fled the markets retained whatever they had managed to withdraw. Investors who remained, however, were positioned to capture the upswing when the markets returned to the mean.
What goes up must come down, and vice versa. Time in markets will outperform timing market movements for all but a (very lucky) few gamblers.
Diversification is key. That means crossing industries, countries and asset classes. There are no ‘golden ticket’ stocks, and anyone trying to tell you otherwise is selling you something – or straight up scamming you.
Investors can benefit from understanding that they don’t need to predict which countries will deliver the best returns during the next quarter, next year, or next five years. Why? Holding equities from markets around the world – as opposed to those of a few countries or just one – positions investors to potentially capture higher returns where they appear, and outperformance in one market can help offset lower returns elsewhere. Put another way, a globally diversified portfolio can help provide more reliable outcomes over time.[x]
Investing is not a competition. Investing is not even a skill. It’s a discipline. This is revealed with the passing of time, not short-term spurts of speculation. Guessing the market on the daily gives you no better odds than flipping a coin. On a monthly basis, 63% are positive. On a 12-month basis, 75% are positive. One a five-year basis, 88% are positive. 95% of 10-year periods and 100% of 20-year periods.
Bringing in the experts is a great start for those seeking advice or a second opinion on their strategy. Working with a trusted, local fiduciary offers value beyond returns by creating a financial roadmap based on evidence, and offering unbiased advice to help you get your financial house in order – regardless of what the headlines are saying about the markets.
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 and Wellington-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 345.
· 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.nzherald.co.nz/business/air-new-zealand-profit-dives-warns-of-tougher-year-ahead/UKWHEWOLLZDJZJGI52GO3V5AKM/
[ii] https://businessdesk.co.nz/article/markets/tough-six-months-hit-genesis-energys-earnings-and-profit
[iii] https://businessdesk.co.nz/article/markets/warehouse-group-shares-fall-after-torpedo-sold-for-1-to-tahua
[iv] https://www.smh.com.au/business/companies/the-buck-stops-with-us-fletcher-building-s-ceo-and-chairman-to-step-down-20240214-p5f4vx.html
[v] https://www.nzherald.co.nz/business/media-insider-super-anxious-three-and-newshub-staff-called-to-11am-warner-bros-discovery-meeting/2OVBMDSPPRH2JFTVBFX6AU4S3Q/
[vi] https://www.goodreturns.co.nz/article/976522840/rbnz-holds-ocr-at-5-5-no-cuts-until-mid-2025.html
[vii] https://www.rnz.co.nz/news/national/510447/price-of-common-foods-soars-more-than-50-percent-in-nz-report
[viii] Dimensional Matrix Book 2023 HISTORICAL RETURNS DATA — AUSTRALIA AND NEW ZEALAND
[ix] https://www.thestreet.com/dictionary/covid-19-stock-market-crash-of-2020
[x] https://my.dimensional.com/which-country-will-outperform-heres-why-it-shouldnt-matter
