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I wrote an article around this time last year that was my most popular piece for the year.
I was answering a question I was being commonly asked: Should you invest in 2018? (You can read it here if you would like to revisit it.)
In the article I mentioned that, after a long period of good performance investors were concerned about investing in 2018: “Could there be a crash on the way?”
When we reflect on 2018 you may recall the following headlines:
With all of this going on you could be forgiven for thinking that 2018 was catastrophic.
Well, what happened?
The Six Park portfolios ended the calendar year of 2018 with returns ranging from -1.4% to +1.6%. Zoom out a little more and take into account January 2019 too and since the beginning of 2018 Six Park portfolios are up around 2.8% to 2.9%.
By no means am I going to suggest that those performance figures are incredible, especially coming off double-digit returns for a few years, but in no way do they reflect the Armageddon that many people thought we were having last year.
Six Park clients who questioned the benefits of holding bonds in their portfolios were reminded of their importance. Bonds provide great resilience to portfolios in a down market. Why do Six Park portfolios contain defensive assets such as bonds? Because the rewards for never being the worst far outweigh the rewards from being the best.
After month after month of poor performance towards the end of 2018 many people I spoke with were nervous... “could there be a crash on the way?”
But at the start of 2018 markets were going up... which made them nervous.
So markets going up make investors nervous.
And markets going down make investors nervous.
Investing makes you nervous because the future is unknown.
Our investment philosophy is to diversify clients’ portfolios across industries, countries and asset classes. Diversifying protects against an unknown future.
So, should you invest in 2019?
Well, the year has certainly started well, but if you’re diversified it’s not about trying to time your entry on the right day, or to pick the best performing company or even the best performing asset class.
Have a look at the randomness in the Morningstar chart below. If you want to play that game then in my opinion that’s speculating, and good luck to you.
I don’t have a crystal ball but I predict two things in 2019:
There’ll be noise in the market
Australia is heading to a federal election in May, so there’ll be some big headlines regarding the Banking Royal Commission, franking credits and Brexit, and cryptocurrencies will be sure to do something too (but I’ve got no idea if that’s up or down!). My point is that there’ll be noise, but there’s always noise.
What else do I think will happen?
You’ll probably be a little nervous.
That’s a natural part of investing, and the more you read these kinds of headlines, the more nervous you’ll be.
Get invested, stay invested, and ignore the noise... that’s the triumph of the optimists.
As Bill Gates once said: “Most people overestimate what they can do in one year and underestimate what they can do in 10 years.”
It’s not about focusing just on 2019 - it’s about your bigger goal.
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This content has been prepared without taking account of your personal objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned in this article, consider whether it is appropriate to your own objectives, financial situation and needs.