Like so many Australians, your new year’s resolution may be to sort out your finances in 2018. It may be to pay off debt, to learn more about your superannuation or to set up an investment portfolio.
Whether you’re looking at robo-advice and ETFs or other investments, after years of strong growth you might be nervous about jumping in now because you worry … could there be a crash on the way?
The reality is, markets go up and down. The definition of a market correction is a fall of 10% from its high – and, on average, there’s a market correction most years. It’s important to remember that these market corrections don’t usually last long, and markets go up three out of every four years. Rather than trying to predict what the market will do in the year ahead, get invested and stay invested. Some people call this the ‘triumph of the optimists’.
We diversify our clients with an investment portfolio over seven asset classes to best manage these risks, but sometimes diversifying can make you feel silly. When markets are up and shares are going well you may wonder why you’re not holding 100% shares, then when markets are down you may wonder why you still have shares when bonds would be safer.
Good luck to you if you want to try to follow this ‘all or nothing’ course. A study by JP Morgan in the US found that six of the best 10 best days in the market over the past 20 years occurred within two weeks of the 10 worst days. Timing the market sounds easy but no one can predict these movements!
And there will always be a small group of people in any year that are getting richer than you because they put all their eggs in one basket before that basket went up. But it’s hard to tell whether skill or luck is responsible for these people’s decisions. They’ll probably be making a lot of noise in the market about it too (hello to all the bitcoin and crypto traders out there!).
Our investment philosophy at Six Park is to get the fundamentals right. We believe that the best two investment decisions you can make involve getting your asset allocation correct and increasing your savings rate. These two decisions will likely have a greater impact on your overall investments than whether you should have bought that speculative stock or not.
When stocks fall a little, as they do from time to time, it’s easy to convince yourself that they’ll fall much further, but it’s important to stick to your original strategy with the understanding that this is part of the journey as an investor. As Warren Buffett said: “The stock market is a device for transferring money from the impatient to the patient.”
Markets have had a good run recently and, even though we don’t have a crystal ball, we believe that the outlook for 2018 still looks pretty good. We also understand that corrections are natural (and usually healthy, in fact) which is why we build defensive strategies into our portfolios. At Six Park, part of your diversified portfolio generally goes up if another part goes down, which means your returns are generally less volatile. Sun Tzu once said that invincibility lies in the defence, and we couldn’t agree more. We tailor our clients’ portfolios strategically to best manage what we think the future may hold.
So, for those who have a new year’s resolution in 2018 to start investing but are concerned about whether now is the right time to start, know that people have those very same concerns every year. If you’re worried about a potential correction turning into a bear market then read our top tips for surviving a bear market.
Most importantly, choose an investment portfolio with built-in defensive assets at a risk level that suits your comfort level – then stick with your strategy. There is an old Chinese proverb: “The best time to plant a tree was 20 years ago. The second-best time is now.”
To help new clients with their new year’s resolutions, Six Park is offering three months of fee-free management for new clients who open and fund an account by the end of January 2018.
Start your 2018 off by investing in your future.