Rear vision investing is a trap that is becoming increasingly more common as modern technology makes information about the investment markets more freely available.
In the world before the internet, investment information was sparse; we placed our money into long term investments and waited for it to mature. Along the way, we received very little performance information and what we did receive didn’t make much sense to the average person.
Today, things are very different. We are bombarded with information about investments, the markets and how things are performing. Unfortunately, the negative news seems to gain more prominence than the positive events and consequently, New Zealanders shy away from things like managed funds and the stock market. Less than 20% of adult New Zealanders seek professional financial advice and hence often do not get a more balanced viewpoint on what to invest into and when to do it. Unfortunately, this frequently results in investors chasing last year’s performers - often with unsatisfactory results.
Managed funds investing in shares had a torrid time a few years back but the good ones have performed well in the past 1-2 years. Bond funds did really well in 2012 but are likely to disappoint in 2013 and beyond. We still see people trying to avoid the sharemarket and chase higher interest rates through using lower quality more risky fixed interest investments. Chasing higher returns in a low interest rate environment like today is a recipe for tears. It is like going back to the days of finance companies where people were blindsided by their expectation that they had to get a 10%pa (before tax) return.
Investing (which is different to speculation) requires a more disciplined approach that includes research, logic and good application. The idea is to develop a diversified investment portfolio that can withstand normal market volatility and produce realistic returns over a defined timeframe. Investing is not about chasing last year’s winner or investing into a public listing just because it is being promoted by the Government. These may still be good things to do (subject to appropriate due diligence) but it should be part of a well diversified portfolio rather than the only investments held.
The idea is to be forward looking rather than reacting to what has happened in the recent past. Talk to the Milestone team about your investment goals and how a well balanced portfolio can be developed just for you.