Over the last month, you've undoubtedly seen articles with variations of the following headlines:
Yesterday, I saw an article talking about the year ahead, which gave a prediction for market returns, house prices and even the dollar. The general idea of the article was that things will continue along in their current state, delivering positive returns but with volatility along the way.
It's always entertaining to review these types of articles 12 months after they're written.
12 months ago, there were a number of articles expressing pessimistic views for 2019. The World Economic Outlook, published by the International Monetary Fund, predicted large challenges ahead for the global economy. At the time, markets were particularly volatile, amidst growing concern among investors about the US and China trade war, Brexit, an anticipated change in the Australian federal government, and a sinking Australian housing market.
All in all, it was a mixture of negative, often alarmist, headlines and it would have been easy for investors to move to a conservative position until the outlook improved.
The challenge with these predictions, however, is that they're just that - predictions. Despite assertions to the contrary, no-one knows what the future will bring or the factors that will impact returns. Anything discussed in the news is already factored into current prices, so what's coming down the line is anyone's guess.
Despite 2019's negative outlook, many asset classes experienced returns that were well above average. For the 12 months to 31 December, the ASX300 Index returned 23.77%, the MCSI World ex-Australia Index returned 27.97% and in bonds, the Barclays Global Aggregate Float-Adjusted Index returned 7.57%.
The year was so strong that Vanguard's Diversified High Growth Fund, a fund which invests 90% in growth assets of shares and property and 10% in defensive assets i.e. bonds, achieved a return of over 23% compared to its longer-term average of 9.62%!
So, if we can't rely on 'experts' to tell us how the markets will perform, how do we position our investments with confidence?
The best way an investor can achieve sustainable long-term returns is to focus on factors they can control. Creating an investment portfolio which suits your risk appetite, gives you the maximum opportunity to reach your goals, and isn't going to cause you to lose sleep at night when the inevitable downturn comes, is the smart move.
So, by all means, stay up to date with global events, but make sure you aren't tempted to invest based on the headlines of the day, because tomorrow the headlines will be different.
|Tags: Financial planning Investment Stock market|
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