In our December newsletter we warned you about the crystal ball gazers that would take center stage in magazines and newspapers during January.  Did you notice them?   Do you believe them?  If so, then our approach to managing money might not be right for you.

 
We don’t put any faith in predications because not only do we not know anyone who can reliably predict the future, we don’t know anyone that knows anyone that can do it. When we’re being asked to give advice on how your hard earned money should be invested, we’re not prepared to put our faith in any process that hasn’t withstood the test of time.

If you’ve met with us for a Financial Roadmap appointment or attended one of our presentations, chances are we’ve shown you our Patchwork Quilt chart which is illustrated below.  In short, this chart illustrates in a simple way how hard it is to predict which asset sector will be the best performing sector in the year ahead; there are no patterns, no indicators, there’s no point.


 


What’s most important is that you understand how much risk you’re exposed to (asset allocation) and that you stick to it.  The only time it changes is when you change (when something happens in your life which requires you to take more or less risk).  In the meantime, it’s interesting to look back and see what the top performing asset sector was in the past 12 months and take comfort that (provided you’re getting advice from us) you achieved that return for the lowest possible cost.

To put things in perspective, let’s revisit 2008, the heart of the Global Financial Crisis.  In 2008, all the growth asset sectors (Australian shares, Global shares, Property and Emerging Markets) all suffered very large negative returns.  Cash and fixed interest were the top performing asset sectors.  Before you scroll down, can you predict what was number one in 2009?

             
In 2009, the top performing asset sector was Australian Small Companies with a return of 64.13%, followed by Australian Value Companies, Australian Large Companies and Emerging Markets.  It’s worth nothing that even though these figures are “massive” when an asset sector such as Australian Large Companies drops by 37% as it did in 2008, it actually needs to achieve a return closer to 75% to get back to where it fell from.  So achieving 36% in 2009 whilst good, means that the recovery is only one third to one half complete.

             
As will become painfully clear to you over time, we don’t make predictions (simply because there is no need to predict the future to have a successful investment experience) so we’re not going to tell you when to get in and out.  However, if someone tells you tomorrow that now is the time to get back into the Australian share-market, do us a favour and ask them “Why didn’t you tell me that 12 months ago?”.  Predicting the future is a fools game.  Investing your money listening to these fools is even worse.