For our July blog, we would like to share an article written by LGT Wealth Management UK regarding the benefits of disciplined long-term investing... 

"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves." – Peter Lynch, Mutual Fund Manager

During periods of heightened financial market volatility, and increased levels of uncertainty, it can be tempting to try and time the market by selling assets and then buying them back at a later stage. However, timing the market is virtually impossible, even for the most experienced investors. This is why it's often said that time in the market is more important than timing the market.

Emotions and investing
Human nature can lead investors to be emotional about financial decisions. When markets dive, too many investors panic and sell; when stocks have had a good spell, too many investors go on a buying spree.
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Past experience can lead to panic selling
People tend to ‘panic sell’ based on their past experiences. There have been six major crashes in the past 30 years, so psychology plays its part.​ 

It is never an easy ride on the way up in a bull market. Investors seem perpetually concerned, worried about the valuation levels, forever peering around the next corner and ever watching for the canaries in the coal mine that might signal the onset of the next market downturn. Prospect theory from behavioural finance suggests that investors are more likely to focus on gains rather than the perceived risk of loss when the outcome of an investment is uncertain. This ties into regret aversion and the fear of loss outweighing the joy of winning – hence many investors panic sell when the going gets tough. This is a large reason why investors are always encouraged not to look at their investments every day.

The issue with trying to time your entry/exit 

The pace at which markets react to news means stock prices have already absorbed the impact of new developments and when markets turn, they turn quickly. Those trying to time their entry and exit may actually miss the market bounce. Attempting to predict the future, may mean you could end up being out of the market when it unexpectedly surges upward, potentially missing some of the best performing days. Missing one or two big days, compounded over time, can greatly impact your portfolio.

The graph below illustrates how a hypothetical $100,000 investment in the S&P 500 Index would have been affected by missing the market’s top performing days over the 20-year period from 1 January 2002 to 31 December 2021. For example, an individual who remained invested for the entire time-period would have accumulated $616,317, while an investor who missed just five of the top performing days during that period would have accumulated only $389,263.

Japan is to revise its tax exemption system for the NISA (Nippon Individual Savings Account), starting January 2024. NISA investments are exempt from tax normally levied on capital gains and dividends, and maybe useful additions to a diversified long-term portfolio.

The NISA account is designed for individuals to self-select and manage a portfolio of funds or stocks, with a tax advantage to entice the piles of cash sitting in Japanese bank and post office accounts, as well as from under the futon!
 
Under the new NISA system, the Tsumitate NISA (for regular monthly contributions invested mostly in mutual funds), the maximum annual investment will increase from the current ¥400,000 to ¥1,200,000.

In addition, the General NISA which accepts ad-hoc lump sums (5 years tax exempt) will be replaced by a so-called 'growth investment framework' that will include listed stocks. It will be available alongside the Tsumitate, and the maximum annual contribution will be increased from ¥1.2 million to ¥2.4 million.

The lifetime tax exemption limit will be raised to ¥18 million of contributions, of which up to ¥12 million can be applied to the growth investment framework. The current 5-year limit on the tax exemption on capital gains will be abolished under the new system, with no limit. 
 
The new NISA accounts may be an option for regular savers planning to stay in Japan for the long term (10+ years). To the best of our knowledge, these accounts are only offered in the Japanese language, so we urge you to make sure you fully understand the terms and conditions when signing up. Another point to bear in mind is that you may be forced to sell your NISA investments when leaving Japan permanently, and that may be at an inopportune time in the stock market cycle.

In summary, a potentially useful complement to your portfolio of diversified assets due to the tax freedom on any capital gains and dividends. However, like any risk-based asset, the value of a NISA can fall as well as rise, and you may not get back the money you invested. The language barrier can be an issue for some, and an untimely departure from Japan may have an effect on what you ultimately get back.

We are most grateful to the production team at the British Chamber of Commerce in Japan, to present ourselves and our services in video format! Our Senior Investment Adviser, Rob Williams spends 7 minutes explaining who we are and what we do.

We are reaching the end of a challenging year for financial markets. Interest rates are starting to squeeze households, the war in Ukraine continues, China struggles with its COVID policy, and many economies may already be in recession. The housing market has also experienced a slowdown across leading indicators such as construction activity, mortgage lending and most recently in sales prices.

Touching on investment matters, we’ve seemingly found some relative calm among stocks and bonds recently. Although we may still be in for further short-term volatility, it is hoped that in 2023, interest rate increases can be slowed or even stopped, as central governments grapple with inflation. This should give stocks a springboard for recovery sometime in 2023 and beyond, as long as corporate earnings fall within expectations and there are no extraordinary geo-political events.

Your Portfolio in this Environment

People have a habit of saying we're in a period of high uncertainty, yet we’ve never actually lived through a period of low uncertainty! For those that lived through the late 1970s and early 1980s, many will remember it was a similar environment that set the stage for a strong market tailwind. History shows that market recoveries can occur when they are least expected and can be short and sharp. They can also occur prior to economic recovery. That's why it is so important to be a participant in the markets. How we react to these challenging times will have a significant impact on our long-term financial goals, so we continue to preach the old adage that the true key to investment success is time IN the markets, not TIMING the markets!

The Bigger Picture: What You Should be Focused On

Very few investors have escaped the recent volatility and it is normal if 2022 has made you feel uncomfortable. However, we have reasons to remain hopeful for a more prosperous 2023. Rome was not built in a day, and those who maintain a long-term investment outlook should eventually be rewarded. Unless an investor is considered a 'high risk' strategist, we continue to adopt the traditional approach to asset allocation; a spread of cash, equities, bonds and property as part of a balanced portfolio. 

For the long-term investor, US equities have historically delivered a return above 'normal' inflation. As we reach a peak in interest rates, it is anticipated that the fixed interest sector (bonds) may finally deliver some returns for investors. The ESG story is now an integrated part of of companies' corporate philosophy, so we feel that the sustainable and renewable sectors (energy, water, wind, EV's etc) will become ever more significant over time. At the higher end of the risk scale, we may finally see Chinese equities perform better as COVID restrictions lift. 

This is not a solicitation to invest in these sectors, just some areas of interest to keep an eye on. Additionally, past performance is no guarantee to future returns. 

At AP Advisers Ltd, we strive to act as a steady hand and look forward to helping you with all aspects of your financial planning needs looking ahead. We are just an email or call away if you wish to discuss any concerns.

The AP Advisers team wishes you a happy and relaxing holiday, and health and success in 2023.

​As 2022 draws to a close, markets have rallied on hopes of slower inflation and a softening of interest rate policy by the US Central Reserve Bank. However, much more evidence of slowing inflation will be needed before we see any loosening of monetary policy.
At some point in 2023, it is hoped we will see inflationary pressures easing, a peak in US interest rates, and fears of a deep economic recession subsiding. It is not a question of if, but when.
Long-term investors who adopt the philosophy of ‘time IN the markets, not TIMING the markets’ should eventually be rewarded. It is much trickier to know when to go back into riskier assets from cash, than to come out of them so we continue to advise that clients remain invested and stay patient.
After all, if the alternative is cash, bank interest rates remain well below actual inflation numbers, leading to an erosion of purchasing power. Not a long-term solution.
That is not to say, we do not expect further market volatility in the coming months. Weaker company profits and adverse macro-economic data continue to be reported on the one hand, but on the other, we saw better than expected inflation data in the US recently which sparked a sharp rally. Volatility is the short-term watchword at least for the time being, but if you are not invested, those rallies will be missed.
Historically, markets have tended to bottom once interest rate cuts are on the cards, but investors need more assurances that inflation has peaked and is falling back to a ‘normal’ range. History also tells us that markets tend to turn for the better before the bottoming of an economic cycle as investors position themselves for an anticipated recovery. This is where investors can be too late coming to the party if they are sitting on cash.
Exactly when markets start to anticipate a better growth outlook will depend on a number of factors, and notwithstanding any unforeseen events, be they geo-political, economic, or otherwise.
OutlookAn appetite for riskier assets may intensify as 2023 evolves but before that, we can probably expect further market volatility. We will need to see interest rates peak and recede, and a bottoming of corporate earnings and economic data. This is also likely to lead to a softer US Dollar valuation. What history has told us is that equities should outperform most asset classes, and at least provide growth above inflation. Time IN the markets!