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Blog

February 4th, 2012
Hindsight’s a wonderful thing but it’s the future that counts for investors

Check out these statistics from the Financial Review on the 4th February 2012:

  • The Dow Jones Industrial Average has climbed to its highest level since May 2008.
  • The US S&P is up for a fifth straight week.
  • The US S&P is up 6.9% in January 2012.
  • The US S&P has had its best January since 1987.
  • The US S&P is has climbed 22% from its 2011 low of 1,099.23.

Pretty impressive numbers aren’t they? I could go on but I won’t.  I think I’ve made my point that shares have been the place to be for a few months now.  Whilst the numbers are impressive they’re not much good to us.  That’s because those numbers are history.  What we’d really love to know is what’s going to happen in the future.

What do you think? Will it be up? Or is it down? Wouldn’t have a clue? Why don’t we just flip a coin instead? The logical place to start would be to consult the expert’s opinions.  Unfortunately, for every expert that says something is going to go up you can find another expert that says it’s going to go down.  At the end of this year we will look back on 2012 and say, ‘X’ was the best performing asset and ‘Y’ was the worst.

There are two fundamental principles that this highlights to me and I want to highlight to you.

Firstly, you have to invest GRADUALLY and CONSISTENTLY.  Investing gradually and consistently means you’re invested all of the time….even during the bad times.  If you are uncomfortable being invested all of the time (even when things are bad) remind yourself of the saying ‘It’s always darkest before the dawn’.  In other words, just when you think things are never going to get any better, they do …and quickly.  If you are invested all of the time you will reap ALL of the rewards of EVERY recovery.  You might hear financial advisers say, ‘markets are a bit worrying now so leave your money in cash until they recover’.  If you’re going to have your money parked in cash you need your adviser to tell you when markets are at the bottom so you can get back in…..not wait for when they’ve recovered.   If you wait for a recovery you will leave a lot of good returns on the table for some other punter.

Now for the second principle I would like to highlight.  And that is, you must construct a properly diversified investment portfolio.  If you have a properly diversified investment portfolio you are GUARANTEED to reap the rewards of the next best performing investment.  It’s like a horse race, if you place a bet on every horse in a race you are guaranteed of picking the winner.  Common sense dictates that if you are invested in every asset class then you know one of them will be the best performing investment.  The words ‘Guarantee’ and ‘Investment’ in the same sentence normally mean you run away as fast as you can.  Not this time.  I can GUARANTEE you will get exposure to the next best performing investment if you have a properly diversified investment portfolio.

As always, I’m more than happy to discuss my thoughts with you in more detail.

Signing off from Dan’s Corner

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It is an absolute pleasure to work with Angelo, Frank and the Brisbane team and highly recommend PFG for any financial services that our members require.

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PLUMBERS UNION QLD

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