A lifetime perspective

When stocks take a tumble, it’s time to rejoice – this is money making time. For accumulators. For fixed term investors, on the other hand, it’s just another temporary decline in the long term permanent rise of local and international stocks. For fixed term investors – look out the window, smile at the blue skies and sunshine of spring and whistle. No point in worrying – it’s what markets do.

Back to accumulators – that’s people contributing into investment funds – not bank accounts and investment funds. I’m primarily focused with this epistle to people who want to grow wealth. Therefore, people investing into appropriately diversified international and Australasian stock funds. This is something you should do for life. Buy and Hold. Buy and Hold. Age 20 to age 90. It’s what creates wealth and maintains it for generations. No point doing  buy and hold into bond funds or cash (bank accounts – term deposits), but Growth assets such as commercial property and the great companies of the world (international stocks) is where fortunes are made and maintained. But growth assets are volatile – (on the way up to the next record high) – and that’s my point for accumulators. You just don’t know when the next sale is coming along, so dollar cost averaging or buy and hold, buy and hold, buy and hold is your ticket to retirement with style. Not some namby pamby 3% into a KiwiSaver fund you think is going to make your fortune. Forget about it, Gen Y and Gen X – KiwiSaver will be government controlled and manipulated by the time you reach age 67-70. You need wealth by age 60 and only you can be in charge of that and don’t kid yourself that property is the panacea. Social housing, inner city housing, and anti investment property strategy will become more and more prevalent. But government can’t and won’t control private business growth and development – that’s what creates employment and taxes. Free market enterprise (or capitalism) – that’s where your investment should be going. It is most productive to company and country in this quarter and most rewarding to the investor. What I call Historical probability? Growth stocks, value stocks, large stocks, small stocks – buy thousands of them all around the world – we know what historical returns are and we know that price and value are inversely related. So when the price goes down – rejoice. Stocks are on sale, just hope there are lots of sales through your life time. By the way, we know the historical probability for that also. 13 declines of 20% lasting three months or more since World War II. About every 5 years. We also know the annual average intra-year decline since 1980 has been in excess of 14%. But we haven’t even had a 10% since 2012. Hence my excitement. I need hardly add that since 1980, the S&P 500 has grown from 135 to 1,985 (or whatever the current index stands at). Without dividends. The S&P 500 index has averaged 17,91%. The NASDAQ – 22.95%.

Just as an aside. I like to keep an eye on the NZ Super Fund (the Cullen Fund). It has an excellent long term mandate and is thus unaffected by market place noise and competition. The guardians and fund managers are getting on with it. Have a guess what percentage of the fund is in income assets (12%) – the rest – growth assets (They must know a thing or two!)

Just to leaven the prospective excitement that all readers might glean from this little essay on ‘buy and hold’ for life – at times of ‘correction’ – (10%) journalisms longed for headline, or ‘recession’ – (20%) journalisms apocalypse du jour – don’t succumb to the notion that volatility and risk are fundamentally the same thing. At S&P 1985 (on whatever  levels stocks may be trading at when you read this) we have every reason to know as never before that volatility is the advent of temporary decline – which happens all the time – while risk refers to the chance of permanent loss – which, in a well-diversified equity portfolio held for the long term, never happens. This is anything but a semantic distinction. It is the precise reason a few investors prosper while most fail.