On the cusp of my 25th year at Stewart Group, I have found myself reminiscing on what I’ve seen in the financial world during that time, and a few financial lessons proven along the way.

In terms of the markets, there have been five ‘bull’ markets and four recession ‘bear’ markets.  Bull markets commonly refer to a time where the stock market gains 20% or more from the last sustained low point.[i]

Lesson one: Keep in mind that bulls don’t run forever. From 2009 to 2020 we had an 11-year bull market, which is above the average length of around two years and nine months.  Investor confidence was at a euphoric high, and some were taking on more and riskier investments because of it.

There are many things which can cause a bull market to end.  Common factors include familiar hits such as high inflation, rising interest rates, recession, overvaluation, and geopolitical instability.[ii]

Bear markets, much like their namesake, run downhill. This is typically a prolonged decline of 20% or more, and is usually accompanied by a weakening economy and investor pessimism – and it’s not always alongside an official recession, but they can overlap.[iii]  Keep in mind that recessions look at a country’s GDP for definition, while the definition of a bear run depends on stock markets like the S&P 500 or our local NZX 50.

Since the big bull ending in 2020, we’ve had two separate economic downturns.  To the unwary it might seem like time to cut your losses – when the bear is looming, and you might just want to get out of the way of its teeth.  However, a bear market isn’t the time to get out of the financial markets.  It’s the time to shop the sales.

Lesson two: When markets take a dip, it’s an opportunity for investors because it means they will typically have more purchasing power.  It’s the same as going to the supermarket the week after Easter and stocking up on discounted chocolate; it’s the same product, you’re just paying less because of the timing.  So, would you buy one chocolate egg on Easter Friday, or wait a few days and buy several for the same price?

Another thing to remember when the bear comes prowling is that so long as you have a globally diversified portfolio with a mix of asset and sub asset classes, and your risk is equal to the amount of time you’re looking to invest for, you need not be concerned about short term market movements.  Stay true to your plan, and don’t lock in paper losses by pulling the emergency brake.

Which brings us to lesson three: Emotions and investment strategy are not good bedfellows.  This goes for both the overly-optimistic feelings we tend to see in bull markets, and the fear of loss in bear markets.  While investors can be euphoric about positive news, our inherent wiring makes us risk-averse, causing negative news to outweigh positive developments. Working with a fiduciary financial adviser can help you take a step back and avoid knee-jerk reactions when the markets swing around, as they are prone to do.

While there are more DIY options now than there were 25 years ago, even a great knowledge of the markets and how they work can be undone by emotion-driven investment decisions made in the face of uncertainty.  Managing the end to end process of your own financial plan can be hugely stressful, so why not share the burden with someone who has your best interests in mind?

There’s a lot of merit to working with a trusted professional when it comes to your financial future.  They know these lessons already, so you don’t have to learn them the hard way by going it alone.  And, by working with a local financial adviser, you allow yourself to have an on-call, face to face buffer between any market-related worries you might have, and the actions taken regarding your investment portfolio and financial plan.

Ultimately it is up to you, but having an expert on hand whenever you need clarification or assurance can be invaluable.

Bears, bulls... May as well throw in some lions and tigers, oh my!  While it’s valuable to understand what they mean for the financial climate, no animal-inspired market trend will mean as much for your future wealth as a robust, forward-thinking financial plan could.

 by Nick Stewart (CEO and Financial Adviser at Stewart Group)

·         Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 362.

·         The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

[i] https://www.forbes.com/advisor/investing/bull-market-history/

[ii] https://www.cmcmarkets.com/en/trading-guides/bull-markets

[iii] https://www.investopedia.com/articles/economics/08/past-recessions.asp