The annual New Year celebrations are nearly upon us. Soon the world’s great cities such as Sydney, Tokyo, Hong Kong, London, Paris and New York, will indulge us in spectacular fireworks, thunderous sounds and dazzling lights shows.
These great cities are also home to some of the major stock exchanges in the world and in 2019 it’s certain capital markets will once again indulge us in falls, recoveries and rises, but to what extent, no one knows. Furthermore, world leaders, politicians, economists, the media, astrologers and fund managers have absolutely no idea if markets will close on a high or a low on 31stDecember 2019.
All of that said, capitalism, despite its many flaws, is very likely to remain the preeminent, global economic model. Capital markets thrive because they succeed over the long-term and, as investors, we are right to expect a return in the form of interest, dividends, growth, on the capital we supply.
As we approach 2019, we wanted to suggest 3 New Year Investment Resolutions if you want to become a successful investor.
The amount of information available to us can tempt us to check-in on our investments weekly, daily, or even hourly, and perhaps as often as we check our emails. At Wells Gibson we take a much wider view of the markets and whilst past performance is no guarantee of future returns, the history of the market continues to trend upwards.
Consider the S&P 500 Index which is the American stock market index based on the market capitalisations of 500 large companies. According to First Trust, if we go back and look at all the bear (downwards) and bull (upwards) markets from 1926 to September 2018, the average bear lasted 1.4 years and resulted in an average cumulative loss of 41%. However, the average bull lasted 9.1 years and gave investors an average cumulative total return of 480%.
When volatility strikes, and it will, patience is usually a good course of action. At Wells Gibson we create Wealth Plans to provide for the rest of your life, not one bear or bull cycle. Instead of panicking when the market falls, try to think of volatility as a tax that we as investors pay on the wealth that the market can create.
As well as struggling to accept volatility, many people are wary about the markets because they feel powerless. Money goes in, and decades later, who knows what’s going to come out. They feel that politicians, corporations, and geopolitical turmoil will have the final say in how big their retirement nest egg grows.
However, often the biggest factor that determines the success of your investments is simply contributing new money on a consistent basis. As discussed above, the market will most likely trend upwards in the long run. The more of your money that’s along for the ride, the bigger those eventual gains will be. For example, suppose that you decide to invest £10,000 every year for 10 years into your portfolio. In a flat market returning 0%, the contributions of £10,000 per annum would account for 100% of your portfolio’s gains. In a modest market returning 6% net per annum, the contributions of £10,000 per annum would account for 73% of your portfolio’s gains according to Invesco.
Focus on what you can control
Investing involves accepting things we can’t control. A hurricane on the other side of the world might rattle the markets for a couple days. A large company might become embroiled in an accounting scandal. The Bank of England might make an unexpected interest rate move. Market corrections might follow.
However, if you understand volatility and continue to focus on the big picture, you’ll start paying more attention to the things you can control, like a monthly budget that allows for automatic contributions to your pensions and investments. Furthermore, consider setting a goal to increase your contributions. Many people try to save or invest 10% of their income. Can you aim for 15% or 20%? The bigger the contributions, the bigger the payoff when you decide to retire and if retirement isn’t on your radar, that big investment cushion will go a long way towards helping you achieve financial independence.
If you’re still unsure about investing in the markets, contact Wells Gibson today to arrange a Discovery Meeting. We can help clear away any misconceptions you might have about investing and create a Wealth Plan which brings clarity, contentment and certainty to your financial life.
Happy New (Investment) Year!