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Where Next for Investment Markets?
Share markets are at all-time highs, what should you do?
Ever had a nagging feeling you’ve missed the boat? You might think the stock market is too high, or it’s on the brink of a correction or a crash? If you have, you’re certainly not alone. It's a fundamental human instinct to wait for what feels like the "perfect time," to gather all the available information and then, and only then, to act. This natural inclination, however, is a financial trap which has cost countless potential investors a fortune in lost opportunities.
Let’s be honest, who wouldn't want to “see around corners” by knowing what the future holds? We'd all love to know with certainty what’s going to happen with the stock market, the economy, or even what’s for dinner tonight (a question which has caused more relationship strife than any financial downturn). The problem is no one has this magical insight. Not the one uncle who always has a red-hot stock tip, not the most celebrated hedge fund managers, and certainly not the online pundits. Trying to predict the market’s movements is a fool’s errand, but building a durable financial plan is not.
So, let's take a closer look at several ideas which will help you move past the "what-ifs" and on to building a prosperous future.
1. Remember What You’re Investing In
It’s easy to forget what you’re actually invested in.
When we invest, most of us only ever see a balance on a screen, whether it’s a KiwiSaver account or an investment portfolio, and it can feel a bit abstract. But that number represents ownership, however small, in real businesses operating all over the world. In most managed investments (including KiwiSaver) and professionally built investment portfolios, the holdings are typically shares in some of the largest and most recognisable companies on the planet.
And here’s another part we may overlook: these businesses aren’t just sitting still.
We’re living through an era of extraordinary technological change. Nearly every company, from the household names to the smaller, fast-growing players, is investing heavily in new technology. Artificial intelligence (AI) is the most visible example. Companies are committing hundreds of billions of dollars into AI development because they see it as transformational, not just for their own operations, but to transform entire industries and even transform our daily lives.
Of course, no investment journey is perfectly smooth: there will always be market ups and downs. But when you step back and consider the scale of innovation underway, it’s difficult not to feel optimistic. Investing isn’t just about numbers on a screen; it’s about owning a stake in the businesses shaping the future.
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2. Waiting for the Dip is a Missed Opportunity
A common belief, and one which seems perfectly logical on the surface, is you should only invest when the market is low. This is a brilliant tactic in theory, but in practice, it’s a recipe for sitting on the sidelines forever. Think about it: a "low" only becomes apparent in the rearview mirror. By the time you are confident the market has bottomed out and a rebound is underway, it has often already begun its recovery, leaving you with a bad case of FOMO, or fear of missing out. This isn’t just a hunch; it’s a well-documented phenomenon.
The historical data offers a powerful rebuttal to this cautious approach. The S&P 500, a key barometer for global markets, has trended upward over the long-term, despite numerous crashes, corrections, and economic crises. Over the past 75 years, it has had positive returns in roughly 75% of those years. The market’s journey is not a smooth, upward line; it's a bumpy, zig-zagging path, but the overall direction is undeniably up.
The most common hesitation goes something like this: “But the market’s already at a record high. Surely it’s due for a fall?” It sounds reasonable, but the data doesn’t support the fear.
- A study published by Forbes shows after each of the last 13 all-time highs, the S&P 500 went on to deliver an average return of 15.3% one year later, rising in 12 of those 13 periods. That is a strike rate most professional athletes would envy.
- Meanwhile, JPMorgan Asset Management crunched the numbers and found investors who only bought on days the S&P 500 hit record highs enjoyed impressive long-term annualised returns of 9.4%. In other words, waiting for a “better” entry point usually just leaves you on the sidelines.
Consider the data from the past several decades. The market has consistently reached new all-time highs. If you had waited until the market was “low” to invest, you would have spent a significant amount of time sitting in cash, all while the market continued its upward trajectory. The key takeaway? Time in the market is far more important than timing the market.
As the legendary investor and billionaire Warren Buffett famously said, “The stock market is a device for transferring money from the impatient to the patient.” Don’t let impatience or fear of a dip stand in the way of your financial growth.
3. But, When Markets Drop, It's Time to Invest More
It’s an entirely counterintuitive idea, isn’t it? When the markets are tanking and the news is full of doom and gloom, the gut reaction is to panic, pull your money out, and hide it under the mattress. However, this is precisely when some of the greatest wealth is built. It requires a calm head and a commitment to your long-term objectives, but the rewards can be immense.
When a correction or a bear market hits, it’s not an apocalypse, it’s a sale. Suddenly, you can acquire high-quality assets at a significant discount. Think of it like this: if your favourite shop has a massive 30% off sale, do you stop shopping there, or do you stock up on everything you love? You go shopping, of course! Yet when an investment market offers a similar discount, many people sprint for the exit.
Ramsey Solutions calculated missing just the five best trading days in a 40-year period could reduce an investor’s portfolio by hundreds of thousands of dollars. That’s the price of panicking when markets dip.
History backs this up. According to Bloomberg, since World War II the average bear market in US equities lasted less than a year, while the average bull market lasted nearly five years. The ratio is heavily stacked in favour of long-term optimists.
Bull Versus Bear Markets
In the investing world, the terms “bull” and “bear” refer to market conditions. These terms describe how stock markets are doing in general, that is, whether they are appreciating or depreciating in value.
- A bull believes the market will increase in value over time.
- Bears are the opposite of bulls. They believe the general direction of prices in the market trends toward a decline.
Although some investors can be “bearish,” most investors are typically “bullish.” The stock market has tended to post positive returns over long time horizons.
With earlier comments in mind, some of you may be wondering how anyone could be bullish when the largest companies on earth (which are home to some of the brightest minds) are investing so heavily in new technologies. That is an entirely valid question!
But, whatever your inclination, this is where the discipline and emotional detachment of a long-term investor truly pay off.
The most effective method for navigating both bull and bear markets is a disciplined, recurring investment plan. This is often referred to as dollar-cost averaging. It simply means you invest a fixed amount of money at regular intervals, regardless of the share price. By doing this, you ensure you buy more shares when prices are low and fewer when prices are high, lowering your average cost per share over time. It takes the emotion out of investing and makes you a disciplined buyer during periods of market stress, when others are selling.
For example, imagine you invest $500 every month. In a rising market, your $500 buys fewer shares. But when the market drops, the same $500 buys significantly more shares. When the inevitable recovery occurs, you will have a much larger number of shares which have now appreciated in value, positioning you for substantial gains.
Most readers are familiar with this already, whether they realise it or not, by virtue of KiwiSaver Scheme investments. Most often, KiwiSaver contributions are simply funnelled out of payroll, and so automatically achieve dollar cost averaging.
Learn more:
- What to do when your investment value falls
- The best investments in a recession
- Investments you can own forever
4. The Silent Erosion of Cash in the Bank
Many people, wary of market volatility, choose to hold their money in the bank. While a safe fund for contingencies is essential for every household, keeping a large surplus in cash for extended periods is a stealthy way to lose money.
The two main villains in this story are inflation and taxes.
Inflation is the gradual rise in prices for goods and services over time, which reduces the purchasing power of your money. If inflation is five percent and your bank account is earning three percent interest, your money is effectively losing two percent of its real value each year. That's a passive but guaranteed way to go backwards. It may not sound like much initially, but it's like having a hole in your pocket you can't see, with your money slowly but surely leaking out.
In New Zealand, the situation is particularly noteworthy. While inflation has been elevated, we have seen interest rates fall, making the returns on cash in the bank even less appealing. This reality underscores a fundamental truth: if you want to grow your wealth, you must put your money to work. Leaving cash to sit idle in a bank account is like parking a race car and hoping it wins the race. It’s simply not built for that purpose.
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5. Alternatives Don’t Stack Up
When people avoid equities (the share market), they often end up chasing other investment choices. Some lean on property, others on term deposits, and a few flirt with exotic assets like paintings or cryptocurrency. While diversification is healthy, it’s worth remembering most alternatives either carry substantial risks or fail to keep up with inflation after holding costs.
Property can certainly build wealth, but it comes with liquidity issues, maintenance costs, and regulatory complexity. Term deposits are about as safe as you can get but, as discussed, weak after tax and inflation. And as for cryptocurrencies, let’s just say if you want your wealth plan to look like a rollercoaster, they’re perfect.
The enduring lesson from more than a century of financial history is that equities, held over long timeframes, remain the most reliable engine for long-term growth.
The Bottom Line: Building a Foundation for Your Future
The path to building wealth isn't about wild speculation or trying to time the market perfectly. It’s about education, discipline, and a focus on your long-term objectives.
The stock market will have its ups and downs. It will experience highs and lows, and there will always be reasons to feel nervous. But history shows over the long term, the patient and disciplined investor is the one who ultimately wins. The time to invest is when you have the funds available. The "what-if" question is one of the most dangerous in investing. The only thing you should be wondering is "what if I had started sooner?"
Don't let market noise, or pundits and predictions from financial gurus dictate your financial decisions. Instead, let your goals and a sound long-term plan be your guide.
Ready to start your journey toward financial freedom? We can help.
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