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Hewison Private Wealth - Insights
Hewison Insights

Block Out the Market Noise

Glenn Fairbairn
Director, Partner & Wealth Adviser
10 Jul 2024

There seems to be no shortage of geopolitical and economic events that can impact the economy and financial markets in the short term. 

These range from the Israeli-Palestinian conflict, the Russian-Ukraine conflict, elections in the U.S., inflation pressures, and the likelihood of further interest rate rises in Australia. What remains unknown is if these factors will be impactful. 

As concerning as many of these current and likely events may be, the reality is that in any year, we are most likely to be confronted with something that can result in short-term market volatility. 

It is for these reasons that investing in volatile assets such as shares and property is fraught with danger when your investment horizon is less than 7 years.  

Investing is not without risk. Just because shares and property have provided an average return of around 10% per annum over the long term, does not mean that investors are rewarded with positive returns every year. The price of investing in assets that have the potential to grow, is that they have the potential to fall in value in the short term. 

You do not win every year. And in fact, many years can be a draw, and in others, you can see the value of your portfolio falling. In situations such as this, many investors question whether it’s worthwhile investing in shares and property, and quite often cash out early out of fear of losing more capital. It is human nature to be more fearful of losses and optimistic about gains. 

Amid a market shock, it always seems as though it is the worst we have ever seen, and a recovery is nowhere in sight. However, history has a way of rewarding those who are patient. Those investors who do not make irrational decisions at the worst possible time and instead, hold the course of sticking to their long-term strategy of wealth creation, are those that are rewarded. 

Investment outcomes can become clearer the further you look into the future. Predictions of the market in the short term are nothing but an informed guess at best. No one can predict where markets, interest rates, or inflation are heading in the short term. 

The reality is that in 10 years’ time, we will not be talking about inflationary numbers in June 2024 or interest rate movements from the remainder of 2024. These factors will long be forgotten, and the market will be well ahead of where it is now. 

As a market observer, I can guess where interest rates are headed, but I may be wrong. And why bother at all? If I ignore the noise, build a diversified portfolio of assets, and focus on quality, the odds of long-term success are highly stacked in my favour. If I am reactive and try to guess what markets will do, I will most likely get it wrong. 

The key to success over any investment cycle is to have a very clear strategy. Investing without one is like driving blind.  

With a tailored strategy closely aligned to your objectives, your portfolio will tell you what you need to be doing throughout any cycle. If you’re underweight shares, it will tell you to buy more shares.  

Invariably, this principle of investing means that you are buying low and selling high. And isn’t this what investing is all about?  

The unfortunate thing is, as humans, we can be very reactive and sell at the worst possible time, this leads to two core principles of investing: 

  • It is time in the market, not timing the market; and  
  • Be fearful when others are greedy and greedy when others are fearful.