Calendar year 2020 was a master class in the importance of global diversification and the principles of successful long-term, goal-focused investing.
In Australia, S&P/ASX 300 Index returned 1.73% for 2020, and the S&P 500 index in the US returned 17.25%.
From these facts, you could infer that the Australian market tracked sideways whilst the US equity market had a stellar year, as indeed it did. What is important to the long-term investor is how both markets got there.
From market highs in February, both markets reacted to the onset of the greatest public health crisis in a century by going down approximately a third in five weeks.
Governments responded with massive intervention and economies learned to work around the lockdowns— the result being the S&P 500 and S&P ASX 300 regained their February highs by mid-August and December respectively.
The lifetime lesson here: at their most dramatic turning points, economies cannot be forecast, and the markets cannot be timed. Instead, having a long-term plan and sticking to it—acting as opposed to reacting, which is our investment policy in a nutshell, once again demonstrated its enduring value.
‘Waiting for the pullback’ once a market recovery gets under way, and/or waiting for the economic picture to clear before investing, turned out to be formulas for significant underperformance, as is most often the case.
As we look ahead to 2021, there is still plenty of uncertainty. But how do we as long- term, goal-focused advisers, make investment decisions out of that uncertainty? The answer is we don’t, because one can’t.
Our strategy is entirely driven by the same steadfast principles as it was a year ago—and will be a year from now. We focus on the areas within our control:
- Invest, don’t speculate
- Asset allocation – balance returns against volatility
- Diversify across asset classes
- Focus on costs and tax
- Staying disciplined.
If you have any questions about your investment portfolio or we can be of assistance with any financial matter, call us on (03) 99350970 or email firstname.lastname@example.org
Sam Hunt - "I have a genuine desire to help our clients achieve what is most important to them, by giving them clarity around the important financial decisions they face."
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice from WARR HUNT prior to acting on this information. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is often not indicative of future results.