The problem is when to get in. Or perhaps more correctly, how to get in.
I don’t really see how anyone can give good advice unless they are in possession of all the facts such as your age, income, assets, debts, insurances, trusts, wills, EPA’s, hopes, dreams and goals. Certainly AFA’s (authorised financial advisers) are required by law to do so.
We are told that in NZ we get around 60% of our advice from family and friends, but that rarely involves anyone listening carefully, no one asking a long list of questions, and no one putting it all on paper in a proper plan.
No one wants advice, only collaboration”. - John Steinbeck
Those who often are disappointed
- Those who think they can pick the market cycles.
- These who don’t diversify and or don’t seek high quality.
- Those who understand buying in gloom is better, but have no patience.
- Those who won’t buy till things look good – buy high
- They wait till things look better, and then pay 10% or 20% more for the same investment.
Inevitably they are disappointed as they will have to wait a very long time, or panic sell in gloom – either way they lose.
Those who buy anytime without really looking – their results depend on luck, what the market was doing at the time, and how much patience they can muster.
Those who often win
- Those who buy in gloom and understand that investing takes time – they inevitably win.
- Those who want to get on with it, but are a tad cautious, so they average in – they do OK too.
- Those who are wary and do half now then wait for a year or two – they do OK too.
Don’t get me wrong, I know market timing does not work
We can all get a prediction right once (e.g. market timing) but who can do it more often? I went on line to try and find experts who predicted the 2009 GFC (very few) and at least one other crisis, but I could not really find anyone.
If you read Fooled by Randomness by Nassim Taleb, you will understand that being right once proves nothing. You can be right once through nothing but luck. You need to be right over several events before you can claim you can predict things correctly.
Rather we should use the various methods as discussed last week in this column last week – averaging in or just do half now. The are many variations of these methods and they are all valid.
- The herd invests in good times
- The countercyclical investor makes a lot more money
- If everyone is buying, don’t
- If no one seems to be buying, do so
- Only buy quality & diversify widely
Once you are invested
Don’t let TV or the radio affect your decision-making. The primary function of most TV channels, and radios radio shows is to sell advertising, and fear sells as it is attention grabbing.
Fear will ruin your investment party and staying disciplined when markets fall is essential.
Most investments including property and shares are usually going to work best if they are held long-term. Yet all too often we see people jumping out of shares when they fall, and turning paper losses into real losses.
Once you are in, it will usually be better/ to stick with the plan and be patient.
Next step – patience
A balanced portfolio averaged + 9.2% pa. from 1990 to 2014.
- 19 positive years & best years +26%
- 5 negative years & worst year –14%
How to be a satisfied investor
Do the following:
- diversify widely over bonds, property, and shares
- buy only quality
- use the most efficient vehicles you can find
- have realistic expectations
- be patient
- recognise that successful forecasting is usually luck
Supplied by Alan Clarke, financial & retirement adviser, & author.
His 2nd book “The Great NZ Work, Money & Retirement Puzzle” is available on line.
Alan is an independent authorised financial adviser (AFA) FSP26532.
His disclosure statement is available on request and free of charge.