Summer is almost here – and as the days heat up we’re reminded of the old adage “make hay while the sun shines”. As you drive around the country, you’ll notice farmers have begun closing certain paddocks off from their animals, ready for harvesting when the days get long, to then be stacked away for winter. They know that not all seasons are optimal for growth – sometimes you have to prepare for the inevitable periods where growth is harder to come by.
The same goes for markets. At 30 September, the key measure of the US share market the S&P 500 Index, closed at 2,976.7* – up over 18% for the year and not far from its all-time record level. Since then it has broken that record and moved on to new highs. The local share market measure, the NZX 50, has done even better – up about 25% and also close to its all-time high.
The story in the bond market has been much the same: global bonds returning 8.2% and local bonds about 7.3% since the beginning of the year.
By any historical measure, markets have been making hay in 2019. If you were invested in a Growth option with more shares, you’ve done particularly well. But even Balanced and Conservative options, without as many risky assets in them, have had some time in the sunshine this year.
At BNZ, we recognise that sometimes we need to harvest those returns. One way we do this is through a process of ‘rebalancing’. This means that when investments do particularly well, we will sell some of them. This is how we ensure our diversified fund options don’t stray too far from the allocations to different assets we have decided on for them.
For long-term investors, the weekly or monthly ups and downs of the market should not be a major concern. The central focus for most investors should be on their long-term goals, how much they are putting in to their investments, and ensuring they are in the right fund option for their risk profile. However, the end of the year is a great time to review each of these to confirm you’re still on track. You may be another year closer to retirement, or your thoughts about risk may have changed for other reasons. If so, it’s good to consider your fund option and ensure it’s still appropriate for your goals. It’s always easier to do this after a period of ‘good weather’ – or as another wise person once said “the time to repair a roof is when the sun is shining”.
* All market data sourced from Bloomberg.
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