The ASX is set to round off a pretty solid year, with the All Ordinaries index up around 20% since January — about double the long term average annual gain. But can the Aussie market continue its winning run in 2020?
The truth is, no one knows.
Of course, you can expect to see all manner of pundits offer their views as to the market’s direction next year. Many will even provide specific estimates of where the leading indices will end up at year’s end.
Almost all will be wrong. Those that are right will be due to dumb luck. That, at least, is what history suggests — but investor memories tend to be short.
The bigger question is why does it even matter where the market will be at this time next year?
The ASX lost ground throughout 2011, 2015 and 2018 and yet today sits well above where it was at the start of these years. In fact, when you factor in dividends, there is no 10 year period that has ever yielded a negative return — no matter what starting point you choose.
Even had you put all your money into the Aussie market at it’s pre-GFC high, today you would (with dividends) be sitting on a ~70% return. That’s certainly not spectacular, but it proves that time in the market is more important than timing the market.
The longer your time frame, the lower the risk. Frankly, you shouldn’t invest a single cent in the market if you’re likely to require those funds within the next few years.
Moreover, markets are driven by sentiment more than fundamentals in the short run, and divining the market’s mood is always an exercise in frustration. If you’re buying shares on what you think the leading index is going to do next year, you are engaging in pure speculation.
Another important consideration is that what individual shares do is often vastly different than the wider market average. The ASX may be up ~20% so far in 2019, but there are plenty of shares that have lost ground — some significantly.
Unless you are trading the index itself, what the wider market does on average is of little importance.
What really matters is how the underlying business performs in the coming years. Get that right (even roughly) and provided you don’t pay a silly price, you’re almost certain to do well.
So stop worrying about where the market is likely to head in 2020. At best it’s a distraction, and at worst it can lead to material and permanent loss of your precious capital.
The only short-term forecast that is of any value is one that famed US financier J. P. Morgan offered to a reporter all the way back in the 1930’s. When asked what the market was likely to do next he simply observed “it will fluctuate“.
Of that, you can be guaranteed.
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