Canny View: Markets don’t wait for official announcements

When the market changes hold your nerve. Time in the market can see your money grow. Photo / MZME

Last year’s dirty word was inflation, and this year’s looks set to be ‘recession’.

You’ll have seen some headlines with various talking heads predicting a recession hitting New Zealand in 2023. CoreLogic is picking house prices will continue to fall as rates rise. Unemployment is tipped to rise as the labour force outnumbers jobs available.

The RBNZ has officially predicted a ‘mild recession’, which they say is required to help bring down inflation towards the second half of the year.

This is a continuation of the game of chicken they have been playing between the OCR and inflation, driving one up to force the other down.

What’s important to keep in mind is – markets don’t wait for official announcements. History tells us that markets operate ahead of economic reports.

It’s a well-known example for a reason – think back to the 2008/09 Global Financial Crisis. The US recession spanned from December 2007 to May 2009. But the official “in recession” announcement came in December 2008 ... a year after the recession had started.

By then stock prices had already dropped more than 40 per cent, reflecting expectations of how the slowing economy would affect company profits. Although the recession ended in May 2009, the “end of recession” announcement came 16 months later (September 2010).

US stocks had started rebounding before the recession was over and climbed through the official announcement.

Financial markets are one of those things that move fast and slow at the same time. Not much happens in the short term, yet so much happens over longer periods of time. We get so caught up in and sweat the small stuff that we miss the forest for the trees.

Multigenerational wealth is a complex, multi-faceted thing, writes Nick Stewart. Photo / Supplied

This is why market timing is impossible. You might get lucky, but the most consistent truth about the markets is that no one can predict what will happen in the short term. We know over the long term that everything comes back to the mean, and volatility will always balance out eventually – but when, and at what point, remains something that you wouldn’t want to bet the house on.

The trouble with investing is that it’s counter intuitive. In other words, the time to act is when we feel crippled and paralysed, and the time to be cautious is when the stars have fully aligned.

We’re just not wired to think or act this way. Doing nothing should be our default when we see news about terrific highs or abysmal lows – and by that, I mean staying with your long-term investment goals, not sitting in cash and waiting for pennies from heaven. In terms of what this means to you as an investor, consider the following:

1.) Think ‘time in the market’, not ‘timing the market’. This is an old adage for financial success and has been proven right many times.

2.) Don’t act on emotion. Not only will it increase your stress level, but ultimately it won’t get you ahead. It may feel wrong to hold your nerve while the market changes. The only thing more distressing than watching the market tumble while you’re in it? Watching the market fly upwards when you’re not in it.

3.) If in doubt, sit down and have a chat with a trusted, independent financial adviser. They can help you create a plan based on evidence, not speculation, so you can handle those highs and lows.

Portfolios should be built with a variety of asset classes to support long-term goals and plans. They are rebalanced based on market targets or weighting changes. They should take into account various scenarios to ensure there is no need to panic and if someone is drawing down, spending is accounted for in the short term.

This is where a trusted fiduciary can come into play 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.

· Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke’s Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions.

· The information provided, or any opinions expressed in this show, 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 an Authorised 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