Article written by InvestNow

How good was 2019?

According to NZ investment consulting firm Melville Jessup Weaver (MJW), last year was one of the best ever – for equity investors at least. Both NZ and offshore equities ended the decade with a final burst of enthusiasm that likely caught even the optimists off-guard.

MJW reports that the “return in 2019 accounted for 20% of the total return for the global shares sector for the decade”. Meanwhile, the NZ equities outran the world once again with the S&P/NZX 50 index crossing the December 31 finish line almost 32 per cent above its end-of-2018 resting level.

Ironically, some of the extraordinary gains investors racked up over the 2019 calendar year came courtesy of the serious share market slump in the final quarter of the previous annual period. NZ shares dropped about 6 per cent in the December 2018 quarter while international equities tumbled over 13 per cent.

In hindsight, that dip proved to be a classic ‘buy the fear’ moment, setting the scene for the record-breaking 12 months ahead. According to our recent 2019 Fund Performance Report, the 10 best-performing funds on InvestNow all returned 30% plus over the 12 months ending December 31 last year, topped by the Fisher Funds NZ Growth Fund result of 37.05%. But investors didn’t need to be precision market-timers (a game not many play successfully) to turn in solid long-term results over the last decade.

Just about every asset class outperformed their respective long-term averages over 2010, MJW reports – NZ equities, again the stand-out market over the 10-year period. “… when we allow for inflation, which has been significantly lower in recent years, the real return [of the NZ share market] is the best on record,” the MJW study says.

Better portfolio management: four tips for the 2020s

As always, good investment news comes with the general disclaimer that ‘past performance is not a guarantee of future returns’. In fact, the current sky-high equity market valuations make it more difficult to generate the same level of returns seen in 2019.

Coupled with persistent low interest rates, returns may not come quite so easily in 2020 compared to the decade just passed. The MJW report says: “Being successful in the 2020s will demand a strong investment governance framework, shrewd use of good quality active, passive and smart beta strategies, and regular monitoring and review of performance.”

While the MJW advice is aimed at wholesale investors such as charities, the general idea works just as well for individuals. Indeed, the start of a new year (and decade) provides the perfect time for all investors to review portfolio settings in light of the challenges ahead rather than assuming the spectacular glow of 2019 will shine on.

Here’s a few investment tasks to ring in the 2020 New Year:

1. Revisit your investment beliefs

Investing is about more than number-crunching. Even the largest professional investors (such as the NZ Superannuation Fund) take time to think about their underlying beliefs, asking questions like:

• Is low-cost passive management always the most appropriate way to invest? Can active managers add value? Or is it best to use a mix of index and active funds depending on the asset class?
• How much diversification is enough?
• Does sustainable investing matter? If so, is it better to invest in funds that screen out ‘bad’ companies or with those that work with firms to improve corporate behaviour?

The answers, of course, will vary according to each individual but they can put investment strategies on a sounder footing. Read widely – InvestNow, for example, has a growing resource base of manager research and market insight to inform the search;

2. Reset your goals

Things change. Career, family, health, personal and financial circumstances are all constantly evolving. Investment goals should move in line with the shifting life dynamics. Are you now saving for a house? Your child’s education? Is retirement looming closer than you thought?

Goal-setting helps clarify why you are investing and what the next steps might be;

3. Revise your asset allocation

Investment beliefs and lifestyle goals will both influence your portfolio asset allocation (simply, the mix of ‘growth’ and ‘income’ assets you own), which requires regular reviews to stay in synch. There are many online tools to help investors define an appropriate asset allocation, like the Sorted calculator hosted on InvestNow;

4. Rebalance your portfolio

The nitty-gritty buying and selling of funds in your InvestNow portfolio follows on from the previous steps. Does the risk profile of your existing portfolio match the asset allocation, arrived at after considering investment beliefs and life goals? If not, which funds do you need to buy or sell?

The differing performance of investments over time (for example, the extraordinary share returns over 2019) can also skew portfolios away from your asset allocation – regular rebalancing may be necessary.

Tools to help

InvestNow has a range of sophisticated tools to help members understand the risk profile of their current and proposed portfolio:

• InvestNow LikeMe Tool – Matches you to existing InvestNow investor data
• Where to start guide – A quick guide through the asset allocation process
• Investor kick-starter  – Identifies your investor risk profile
• InvestNow Performance Reports – Shows recent reports of our top-performing funds
• InvestNow Morningstar Performance Tools (requires login to view) – Shows a full historical view of performance data for all funds available on InvestNow