Sound principles outshine market predictions

A good financial adviser can create a portfolio which can withstand the market’s whims

Financial markets and economic issues are everchanging, and they have a way of ensuring even seasoned professionals feel out of their depth on a regular basis.

I’m not going to bother with any sharemarket forecasts this year. Not officially. I don’t think there’s any point. Trying to predict the unpredictable is just asking for trouble. I’ll end up being wrong, with the only variable being the magnitude of wrong. Let’s be honest, your guess is as good as mine, or anybody else’s.

Many brokers, financial advisers and fund managers out there, no doubt, have a better quality crystal ball, so will persevere with making more specific predictions. While these make for interesting reading, take them with a grain of salt.

NZ shares have posted a positive annual gain for 35 of the past 50 years, so just say they’re going up, and you’ll be right 70 per cent of the time. You can get more scientific, and base your prediction on what they did the previous year (either up or down). That method also has a 70 per cent success rate since the NZX All index came into being.

In all honesty, I wouldn’t really want an adviser who claims to know for sure where markets are going. There are other qualities to look for, which are much more important when entrusting your savings to someone.

Rather than claiming to be a financial soothsayer, a good adviser will focus on putting together your portfolio in a way that makes it sturdy enough to withstand whatever market conditions come your way.

A well-constructed set of investments, tailored to your own specific needs and risk profile, and based on sound, disciplined investment principles is by far the best thing you can do to maximise your future returns.

A good adviser will focus on getting this right from the very beginning, and then ensuring you stick to it, rather than speculating on which way the market is going or which five shares could be this year’s “next big thing”.

To do the job well an adviser must play a few other roles, too, including that of an educator.

Financial markets and economic issues are ever-changing, and they have a way of ensuring even seasoned professionals feel out of their depth on a regular basis.

This is probably quite healthy, because as soon as you get complacent and start thinking you have the answers, you’re in trouble.

They’re the gatekeeper, or more accurately, the bouncer, to any bad ideas that might try and get in.

There’s always a bandwagon to jump on, a banker or fund manager trying to sell you something, and the temptation to panic or celebrate at precisely the wrong time.

Sometimes we need a business partner to keep us on the straight and narrow, tell when one of our bright ideas is a terrible one, or that we are starting to stray too far from the path.

On another note I predict the NZX 50 will deliver a return of 7.5 per cent in 2017, including dividends.