Diversification will win the day

33-259In January, we indicated 2018 would have far more ups and downs and investment returns would likely be lower than in the past 8-10 years. This has certainly proven to be prophetic. Despite a strong start to the year, many market indices have fallen from their early year highs. There has been a mixture of good and bad news and this has led to big market swings from one week to the next. None of this behaviour is unusual and we have observed these ups and downs for decades. The day-to-day causes of these market gyrations may differ, but these gyrations are pretty common during this part of the economic cycle.

The market’s woes were prompted by a sharp rise in US bond yields as investors worried about signs of US inflationary pressures. Around the world, there is rising negativism caused by factors such as the Brexit negotiations, Trump’s comments and behaviour, rising interest rates, and the threat of a global trade war.

On the positive side, The New Zealand market has performed reasonably well. The sharemarket index was largely driven up by the performance of A2 Milk which rose a whopping 53.7% in the three months to 31 March 2018. However, negative news around Fletcher Building and the demise of CBL contributed to causing an overall lackluster quarter. New Zealand business confidence has recovered slightly from its post-election low, house prices have increased again (but slower than previously), inflation is looking to stay low and interest rates are not yet nudging higher.

During this part of the market cycle, caution is the name of the game. The idea is to have a diversified portfolio spread across cash, bonds, property and shares, with a good mixture of local and international investments. We build these portfolios carefully using in-depth research from global investment research companies such as Morningstar, Mercer and others. We will then tailor the portfolios to meet your specific needs and your attitude to risk.
This will enable you and your money to ride out the ups and downs that are likely to continue for some time to come. However, if in doubt, then give us a call.