As we enter the second half of 2023, now is the perfect time to take stock of everything that’s happened since the new year.
Taking the time to reflect on experiences and lessons is an important part of ensuring your investment strategy continues to help you to achieve your financial goals. It also helps you to feel more confident in the fundamental principles of investing. With experience to inform your decisions, you’ll be less likely to be swayed by trends.
Experts predicted a year of low returns in 2023
In Q4 of 2022, a number of economic factors led economists to predict a year of low or negative returns in 2023. As the S&P 500 and Nasdaq 100 declined by 25% and 35% respectively in October, events including sticky inflation, the continuing war in Ukraine, and rising interest rates sent consumer confidence through the floor.
Since the lows seen in October, though, the market has risen by 24% with a year to date return of 16%. This is an excellent result for those who had the confidence and discipline to stay the course with a balanced portfolio in the face of those nerve-wracking predictions back in October.
3 important investing lessons from the first half of 2023
While the exact events that took place on the stock market between January and June are highly unlikely to happen again, the broader patterns of the market do tend to repeat. That’s why it can be helpful to reflect on recent events to reinforce your investing strategy.
Here are three important lessons to take from the past six months.
1. There’s no sense in attempting to time the market
Humans like to find patterns in things, so much so that we tend to expect present conditions to repeat again in the future. For example, if markets become volatile or your investments don’t perform as well as you’d hope, chances are you will fear that the same could happen again very soon.
This is known as “recency bias” and can negatively affect your investment decisions if left unchecked.
Recency bias can lead you to want to try and time the market by moving your money out of certain wrappers to avoid suffering a loss that you believe to be imminent. Attempting to do this, though, is often detrimental to your long-term wealth.
Imagine if you had moved your investments to cash in October when those scary predictions were shared. You may have missed out on the returns that could have been generated as markets recovered, potentially sacrificing years of progress towards your financial goals.
2. Uncertainty is the only certainty on the markets
After two quarters of positive returns across most markets, you may be feeling much more optimistic about the future than you were nine months ago. Again, humans often expect current conditions to repeat, whether they are good or bad.
But the truth is, all the events that created uncertainty in Q4 2022 are still ongoing: inflation, though it has cooled in many parts of the world, remains elevated, the war in Ukraine is ongoing, and interest rates are still rising. So, it’s important to remember that conditions can always change, and nothing is guaranteed.
The positive takeaway here is that many of the biggest companies in the world are taking proactive steps to resolve many of these challenges.
3. Focus on your own goals instead of world events
As you’ve no doubt found from the market highs of 2023 so far, there’s no telling what could happen next to affect your investments for better or for worse.
Basing your investment decisions on world events that could have a long- or short-term effect on your portfolio – or perhaps none at all – could jeopardise your ability to reach your financial goals. Instead, by using your own personal goals as the compass for your actions you can be proactive in creating a plan for success.
More than a hundred years of stock market data suggest that staying focused on your own circumstances and remaining patient, disciplined, and optimistic are much more helpful than reactive decision-making.
Get in touch
Of course, no one can predict what challenges the second half of 2023 will bring. Whatever happens, though, a structured approach that utilises the fundamental principles of investing can help you to stay on track with your plan and give you the potential to achieve your goals.
If you’d like to learn more about how we can help you to build a balanced portfolio that takes you closer to achieving your goals, please get in touch.