If you have been reading or listening to any market commentary over the last 6 months, you will no doubt have heard the term “investing for the long-term”. The last few months have been a real roller coaster which has seen valuations drop, along with investment assets.
You may have seen the value of your KiwiSaver, Managed fund or Investment portfolio drop and reached out for the latest fund update or newsletter to see what has been happening. Within this, it is likely that the fund manager has pointed out that investments with a higher weighting to growth assets (shares and property) are designed for the ‘longer term’ and fluctuations are to be expected.
This may be comforting for investment managers or seasoned investors, but what if you are new to investing and haven’t experienced this before? What if it’s different this time and it isn’t a V or W shaped recovery, or you aren’t sure what these even refer to?
Well, the evidence will tell you that in the past, investors who have stuck to their guns and ridden the wave have been handsomely rewarded. If you invested $1,000 in the S&P 500 Index from January 1997, it would have been worth $10,250 by December 2021.1 For those that are analytically minded, it makes it easier to get on with things and leave their investments alone.
But what if you think with your heart when it comes to your finances? Perhaps you are concerned that the recent headlines around the Ukraine/Russia conflict, risk of recession and inflation are signs that its all doom and gloom ahead. Maybe you’re feeling anxious that your investment portfolio is going to fall through the floor.
Well, keep in mind that headlines are there to grab your attention and are often exaggerated. There’s no doubt that over the last 25 years we have seen some terrible events that have shocked investment markets. Think about the Asian Financial Crisis (1997), Tech Boom (2000), 9/11 (2001), Global Financial Crisis (2008) and Coronavirus (2020) to name a few. Even with all these terrible events, from Jan 1997 to December 2021, the US stock market returned 9.8% per year on average.2 Not a bad return considering all the worries investors faced along the way.
What helps me sleep at night and not overly think about my own investments, is the confidence I have that, as human beings, we have the ability to deal with tough times and come out the other side stronger. To ride the wave if you like. Our human ingenuity often comes up with a solution to a problem, even if that problem was caused by humans in the first place. Since 1997, we have seen the creation of the iPhone, the internet become essential to our personal and business lives, the rising use of solar panels and electric vehicles, human genome discoveries and of course Covid-19 vaccinations.
We might not all have the ability that Steve Jobs had, but somewhere out there is the next great inventor that will change our lives for the better. We can all play our part in shaping the future for our children, grandchildren and future generations. We can even use our own investments to help make a difference.
I don’t know what the next 25 years will bring, but I believe that we will continue to be inquisitive, brave and adaptable, pushing forward with new ideas to make our lives better. This will no doubt help us continue to get through the tough times, riding that so called wave, and on the back of it, investment markets will be stronger.
That’s why, in humans we believe.
Written by: Dal Jandu, EINZ Financial Planner
1. Data presented for the growth of $1,000 are hypothetical and assume reinvestment of income and no transaction costs or taxes. This value is for educational purposes only and is not indicative of any investment.
2. In US dollars. S&P 500 Index annual returns 1997–2021. S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.