Investment Update November 2018 - A Holiday Perspective

10th Dec by Joe Byrne

Investment Update November 2018 - A Holiday Perspective

As the holiday season approaches, it is a good chance to sit back and reflect on what really matters, away from the day to day activity that accompanies us through the year.

Those who have been following share markets will know that returns during 2018 have been more variable (both up and down) than in the few years prior, which were unusually smooth.

With plenty happening during the year, the temptation to keep a very close eye on investment returns is high. At first glance it might therefore seem a little worrying that only just over half of the days this year have delivered a positive return for shares. But this is exactly in line with history. Over the past 70 years, ‘only’ 53% of days have seen a market rise. Put another way, when you look at the share market on any given day, whether it’s gone up or down is pretty much a coin toss.
Put that together with our emotional tendency as humans to feel twice as much pain from a loss as we do pleasure from a gain. It is then clear that someone who checks their investment balance every day is not going to have a very pleasant time!

probability

It gets better though. Despite ‘only’ rising on 53% of days, someone who just checked in annually would have seen a positive return 75% of the time. This rises to 98% of 10-year periods and all 15-year periods, reaffirming that most short-term returns are ‘noise’ for someone with a long timeframe.

In investing, like in many things in life, the best way to have a good experience is to have the right perspective.  

In investing, like in many things in life, the best way to have a good experience is to have the right perspective. Thinking about it this way, long-term saving, and investing has some similarities to going on holiday. When you have packed up and headed out on the road to your destination, if you run into roadworks on the way, you are unlikely to respond by turning the car around. And when you get there, with glass of wine in hand, you probably will not call the cattery or dog kennel each day to see how the pets are getting on either.

So, feel free to sit back this summer – if your investment approach (or retirement plan) has been designed with your financial adviser to be in line with your timeframe, goals and ability to ride out shorter term ups and downs, then your portfolio will thank you for it.

Market Update – November

Global share markets rose slightly in November (up 1%), although returns for NZ investors were offset by a 5% rise in the New Zealand Dollar. Our currency has generally fluctuated in a moderate range between US 65c and 75c over the past two years, and its recent rise to just under US 70c brings it back closer in line with our assessment of long-run fair value.

Oil prices dramatically reversed their recent rise (falling from over US$80 to $60 per barrel), as production rates have increased. This is likely to take the edge off inflation pressure and give central banks a little more flexibility in how they approach interest rates, but it should not detract too much from the path of gradually higher interest rates in the United States (and eventually here in New Zealand).

Amidst the choppier share market performance recently, companies with more stable earnings have come to the fore, which is a typical part of market cycles. Global healthcare businesses are a good example of this, which have performed almost 10% ahead of shares in general since September. It is unfortunate that Christmas will see us all another year older, but this inevitable reality does provide some stability to demand for healthcare services, underpinning company earnings.

Article by Joe Byrne, BA, AFA - Read More

Disclaimer: This article has been prepared for the purpose of providing general information, without taking into consideration any particular investor’s objectives, financial situation or needs.  Any opinions contained in it are held as at the report date and are subject to change without notice.  This document is solely for the use of the party to whom it is provided.

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