Canny view: Playing the long game

You cannot know ahead of time which players will perform well, not even if they're LeBron James. The same rule must be applied to markets. Photo / Supplied

OPINION:
Investing rewards investors over the long term. This has been proved over and over throughout the history of markets. Over the short term, though, holding your nerve can feel painful.

Getting emotionally caught up in the latest markets news - which, by the way, is always outdated by the time we hear it - is a bit like basing your entire perception of an athlete on one game.

Think of the greats – LeBron James averaged about 27 points, seven assists and seven rebounds a game during a 19-year career. How many single games did he achieve these exact stats in?

None.

We know he's a great player - my son reels off Le Bron metrics to me each week - but we know that only by taking into account every game he played, whether the outcome was good or bad, and finding the average.

You cannot know ahead of time which players will perform well, not even if they're LeBron James. If they had a good season last year, they might not repeat it. Other factors are always at play. The same rule must be applied to markets – past performance is not an indicator of future returns.

Right now, we're seeing a lot of volatility and it's making people nervous. When we say volatility, it's usually referencing the amount of risk or uncertainty associated with a security's value. If you're looking at the volatility of certain assets, you're looking at how largely the prices swing up or down around the mean price.

Some may be tempted to take their money and run – some already have. But this will only lock in their losses. Historically, there have been many events where markets have fallen. From the stockmarket crash of 1929 or Black Monday in 1987, to the 2001 dotcom bubble pop or the global financial crisis of 2008. One thing remains constant: the market always recovers. That's capitalism 101.

There is always something happening in the geopolitical sphere. First it was Covid, then the Russia-Ukraine war, now potentially a standoff between China and Taiwan. The markets care less about these events than you may think.

Nick Stuart.

In the grand scheme of things, you don't want to quit the team just because the present season hasn't played out the way we all might have wanted. If you pull your investments during a dip, you're solidifying any losses you may have incurred. If you stay out, then you've only got what's in your hands. If you wait for the market to recover, you're committing to paying higher premiums to jump back on the bandwagon when it feels "safer".

Leaving basketball aside for a moment, let's talk about the mentality of that. Why is it that when something is on special in a store, we flock to buy it – yet when markets dip and assets lose value, many people turn away? You wouldn't buy something in a supermarket just because it's exceptionally expensive. So why would you invest only when the price is up?

A lot of people have been asking me about KiwiSaver recently after nervously watching their funds fluctuate. I can understand the trepidation around that, particularly for those who may be nearing retirement or past retirement age. This is where making sure you're in the right fund for your risk tolerance and timeframe is so important.

Evidence shows us the longer you're looking to invest, the more ups and downs you can weather as the market will always return to the mean. If you're looking to invest short term, volatility is probably not your friend – which is why we always say you should start as soon as you can, to give yourself that cushion of time.

If you have the time, you can handle the volatility. If you don't, it may be time to talk to your KiwiSaver provider, or better, your financial adviser, about which fund you are in and how that aligns with your goals.

Time in markets is infinitely more important than timing the markets.

Part of being able to avoid giving in to emotion during periods of uncertainty is having an appropriate asset allocation that is aligned with your willingness and ability to bear risk. It also helps to remember that if returns were guaranteed, you would not expect to earn a premium. Creating a portfolio that you are comfortable with, understanding that uncertainty is a part of investing, and sticking to a plan may ultimately lead to a better investment experience.

However, as with many aspects of life, we can all benefit from a bit of help in reaching our goals. The best athletes in the world work closely with a coach to increase their odds of winning, and many successful professionals rely on the assistance of a mentor or career coach to help them manage the obstacles that arise during a career. Why? They understand that the wisdom of an experienced professional, combined with the discipline to forge ahead during challenging times, can keep them on the right track.

Just think ... when was the last time you saw a professional tour golfer carry their own clubs? A good caddie helps keep a player's mind focused, and their emotions in check. A financial adviser works in much the same way.

If you're looking to grow or protect your wealth, you are much better off following philosophies that subscribe to scientific, evidence-based practices than those that depend on the golden touch or guidance of individuals. If you're questioning your approach or wanting a second opinion, get in touch with a trusted fiduciary to discuss your options.

• Nick Stewart 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 and KiwiSaver solutions.

• The information provided, or any opinions expressed in this article, 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 go to our website, www.stewartgroup.co.nz

i https://www.basketball-reference.com/players/j/jamesle01.html