Why Predicting the Stock Market Is Foolish and What to Do Instead

How to use the stock market, not fight it

Humans possess an almost pathological need to know what happens next. In the world of personal finance, this manifests as a fascination with stock market predictions. Every year, commentators fill their columns claiming to know where the NZX 50 or the S&P 500 will land by December. They are almost always wrong.

Predicting the short-term movement of investment markets is about as reliable as a cat trying to predict the outcome of a rugby world cup. The cat usually shows better sense and significantly less ego.

Here is what we know for certain: the evidence overwhelmingly favours staying invested, staying diversified, and focusing on the things you can control. If you want to build lasting financial freedom, stop searching for a crystal ball and start paying attention to your own behaviour.

Is Now a Good Time to Buy Stocks, or Should I Wait?

Every investor wants to know if today’s price represents a bargain or a trap. They wonder if the market is too high, if we are due for a correction, or if the latest geopolitical shock will crater their KiwiSaver Scheme balance.

These questions assume markets are predictable systems. They are not. Markets are complex adaptive systems composed of millions of participants, each acting on different information, biases, and timelines. When a guru makes a forecast, they are guessing how millions of people they have never met will feel about corporate earnings months from now.

Even investment professionals struggle with this. Large fund managers employ brilliant staff armed with the fastest data feeds and the most expensive degrees. Yet, across long timeframes, the majority still fail to beat simple, unmanaged market indexes. This finding holds across virtually every major market, including New Zealand. If full-time professionals with institutional firepower struggle to get it right consistently, the weekend investor should probably stop trying to time the bottom of a dip.

The cost of trying to be clever is enormous. According to Hartford Funds and Morningstar, missing just the 30 best trading days in the S&P 500 over recent decades reduced returns by 84 percent. And 76 percent of those best days occurred during a bear market or in the first two months of a new bull market. The best days arrived precisely when the headlines were the most terrifying.

(Much of the long-term data on missed trading days comes from the United States because the S&P 500 has the deepest and longest-studied dataset. The principle applies universally: the NZX 50 and other developed-market indexes exhibit the same pattern of sharp, unpredictable recoveries clustered around periods of maximum fear.)

A common objection: But the market is at a record high. Surely it’s due for a fall? This sounds reasonable, but a study published by Forbes found the S&P 500 delivered an average return of 15.3 percent in the year following each of its last 13 all-time highs, rising in 12 of those 13 periods. Record highs are not warning signs. They are a normal feature of a market with a long-term upward trajectory.

Will the Stock Market Crash Soon?

Fear sells. The media understands this. Bad news captures attention, and steady, boring growth never makes the front page. Investors are perpetually bombarded with warnings about the next great depression or an imminent bubble burst.

Markets crash periodically. This is not a bug in the system; it is a feature. In New Zealand, we have seen the NZX 50 endure significant pullbacks during the 1987 crash, the Global Financial Crisis, and the 2020 pandemic. In every single instance, the market recovered and reached new highs.

Attempting to dodge these crashes is often more damaging than the crashes themselves. Peter Lynch, one of the most successful fund managers in history, observed far more money has been lost by investors preparing for corrections than has been lost in the corrections themselves.

Listening to economists about investments is like taking marriage advice from someone who has been divorced six times. They know plenty about the overall economy, but economy and investment returns are different beasts. Corporate earnings, innovation, and productivity drive long-term share prices, not the latest GDP print.

The point is not to avoid the storm. The point is to build a vessel sturdy enough to sail through it.

What Happens to My Investments When the Market Goes Down?

When your portfolio balance drops, including inside a KiwiSaver Scheme account, it feels like losing real money. But a decline in value is not a loss of capital. A loss only becomes permanent if you sell at the bottom.

Self-reliant investors view downturns as a sale. If you were shopping for a car and the price dropped by 20 percent, you would be delighted. Yet, when the price of high-quality companies drops by 20 percent, many people panic and run away. This is the only industry where customers flee when the products go on sale.

The greatest threat to your wealth is rarely a market crash. It is the person staring back at you in the bathroom mirror. When markets get volatile, our lizard brain screams at us to do something. Usually something counterproductive: selling low out of fear and buying high out of FOMO. Research from Wells Fargo Investment Institute found over a 30-year period, missing the best 30 days in the S&P 500 slashed average annual returns from 8.4 percent to just 2.1 percent, which was below the rate of inflation. Staying invested, boring as it sounds, lets compounding do the heavy lifting.

We are living through an era of extraordinary technological change. Nearly every company, from household names to small, fast-growing upstarts, is investing heavily in new technology. Artificial intelligence is the most visible example. Major corporations are committing hundreds of billions of dollars to AI development because they see it as transformational for entire industries, and for our daily lives.

How to Take Control of Your Financial Future

If we cannot control where the market goes, we focus on what we can control. In our experience advising hundreds of New Zealand households, the investors who build lasting wealth concentrate on three things: tax efficiency, diversification, and education.

1. Tax efficiency. You cannot control whether the NZX 50 grows by eight percent or shrinks by five this year. You can control how your investments are structured from a tax perspective. New Zealand’s tax rules for investments are genuinely complex, particularly once you hold assets across different structures or invest beyond our borders. The right structure can make a meaningful difference to your after-tax returns over time, and the wrong one can quietly erode them. This is one area where professional guidance tends to pay for itself.
2. Diversification. Diversification has been called the only free lunch in finance. By spreading your assets across different industries, countries, and asset classes, you ensure the failure of one does not result in the ruin of all. New Zealand’s sharemarket represents less than 0.2 percent of global equity markets. Investors who stay entirely local miss exposure to sectors barely represented here: semiconductors, global healthcare, large-scale technology, and major financial services. The patient investor knows global innovation and human ingenuity are the real engines of wealth creation.
3. Education. Understanding the mechanics of your investments removes the mystery and the fear. This is especially true when navigating complex life stages, such as planning for a comfortable retirement. Formal education is not required. Podcasts, books, and the growing number of quality financial resources mean you can learn at your own pace. New Zealand’s Financial Markets Authority also publishes free investor guides worth reading.

Why Predicting Market Movements Is a Waste of Time

The pursuit of the perfect entry point is a form of arrogance. It assumes you know something the collective market does not. In reality, today’s price already reflects all publicly available information and the expectations of millions of participants.

Focus instead on your own timeline. If you are 20 years from retirement, the price of the market today is almost entirely irrelevant. What matters is the price in 20 years. Warren Buffett, arguably the greatest investor in history, famously noted the stock market is a device for transferring money from the impatient to the patient. Patience is a genuine superpower in a world addicted to instant gratification.

Evidence-based investing involves looking beyond our shores to capture growth in sectors barely represented in New Zealand. This is a more professional approach: moving away from a get-rich-quick mentality and toward a get-wealthy-surely mindset.

The Myth of the Perfect Economic Conditions

Many people wait for low inflation, low interest rates, high employment, and political stability before they start investing. If you wait for all those lights to turn green simultaneously, you will never leave your driveway.

Historically, some of the best times to invest have been when conditions looked the bleakest. Markets are forward-looking. By the time the evening news tells you the economy is back on track, the sharemarket has already priced in the recovery and moved higher. Taking ownership of your financial future means starting where you are, with what you have.

What Will Actually Happen Next With the Stock Market?

We can tell you with 100 percent certainty: it will go up, it will go down, and it will eventually go higher than it is today. Between now and your retirement, there will be wars, pandemics, elections, technological revolutions, and economic crises. There will also be periods of unprecedented growth and innovation. The noise will always be loud. The world will continue to move forward, and those who own a piece of its progress will do very well over time.

What Alternatives Are There to the Stock Market?

When people avoid equities, they often chase other options. Some lean on property, others on term deposits, and a few flirt with exotic assets like paintings or cryptocurrency. While diversification is healthy, most alternatives either carry substantial hidden risks or fail to keep up with inflation after tax and holding costs.

Property can build wealth, but it comes with liquidity problems, maintenance costs, and regulatory complexity. Term deposits are about as safe as you can get, but weak after tax and inflation. And cryptocurrency? If you want your wealth plan to resemble a theme park ride, it delivers.

The enduring lesson from more than a century of financial history is equities, held over long timeframes, remain the most reliable engine for building wealth.

Common Questions

Should I pull my money out during a downturn?

Generally, no, unless you need the cash within the next year or two. Selling during a downturn converts a temporary paper loss into a permanent one, and means you are likely to miss the recovery. History shows the sharpest rebounds often occur within days of the worst drops. This is not financial advice specific to your circumstances, but the data on this point is remarkably consistent.

Is it better to invest a lump sum or spread it out over time?

Research from Vanguard consistently shows lump-sum investing outperforms dollar-cost averaging roughly two-thirds of the time. However, if investing a large amount in one go keeps you awake at night, spreading it over a few months is perfectly sensible. The best approach is the one you will actually follow through on.

What about investing in a KiwiSaver Scheme versus an unlocked fund?

Both serve important roles. A KiwiSaver Scheme investment offers employer and government contributions, making it a strong foundation. But its strict withdrawal rules mean most people are well served by contributing only the minimum needed to capture those benefits, then directing additional savings into unlocked managed funds for greater flexibility. Having wealth you cannot access until age 65 is only useful if you are 65.

The Bottom Line: Predicting the Stock Market

The sharemarket does not care about your feelings, your politics, or your predictions. It rewards those who provide it with capital and patience. Your role is not to outsmart the market. Your role is to out-discipline it.

Real wealth is not built through prophetic insight or market timing. It is built through the relentless application of a sound process, a tax-efficient structure, genuine diversification, and the courage to stay the course when others lose their nerve. You are the architect of your own financial future. The only thing missing is the decision to start.

Ready to take the lead on your financial freedom? Talk to our team about building a plan designed around what you can control.