4 Money Trends We Could Expect in 2024

Inflation, the Magnificent Seven, Japan’s share market encore, the crypto rollercoaster and peaks in US treasury yields. It's safe to say, 2023 was an interesting year all around.

Despite the predictions of recessions, poor market performance and hard landing anxieties, the US has managed to wrangle down inflation. Leaving investors with a glimmer of optimism and hope for a soft-landing and interest rate cuts in the latter half of 2024. However, now being well into the new year, we’ve seen many forecasters and pundits chiming in with their predictions and crystal balls for the rest of 2024.

Remember, as you read the plethora of sensational stories forecasting the twists and turns of the economy and investment markets, it's crucial to consider the motivation behind each person's opinion.

The opinions you find can either fuel your own beliefs or fill you with fear, such as a Fox News pundit’s market forecast in late December – where he's envisioning a 1929 to 1932-style event with an 86% S&P crash, a 92% NASDAQ plunge and a crypto nosedive of 96%. Naturally, it is not impossible.

In the case of the mentioned pundit, it boils down to promoting his paid research reports—a strategy adopted after an unsuccessful stint as an asset manager where his funds, like many actively managed ones, couldn't outperform the market and were eventually shuttered.

As strong advocates of data-driven, systematic, and long-term investing, we maintain our position against making investment decisions on speculative forecasts and crystal ball gazing. Instead, we urge you to focus on the controllable and repeatable factors that fundamentally contribute to long-term wealth accumulation. We also acknowledge our biases and encourage you to be equally as critical of our views.

As we look at 2024, let's explore new trends and remind ourselves of important long-term themes.

From 2008 to 2022, during a period of historically low-interest rates, the investment landscape was marked by a catchphrase, TINA – There Is No Alternative. This phrase captured the notion that, given the meagre yields on bonds and cash due to low interest rates, investors were compelled to explore riskier assets like shares, cryptocurrencies, Non-Fungible Tokens (NFTs), other and alternatives as there seemed to be no alternative for generating reasonable returns of 5%+.

However, with central banks, including the Reserve Bank of New Zealand, swiftly raising interest rates, bonds have regained popularity as an asset class for investors. Interestingly, this resurgence in bond interest extends across the investor spectrum, not solely among those managing portfolios closer to access.

According to Schwab Asset Management data in the US, millennial ETF investors have allocated 45% of their portfolio to fixed income, while Gen X allocates 37%. Furthermore, millennials show a higher inclination to invest in bonds, with 51% planning to do so compared to 40% of baby boomers.

This resurgence of interest in bonds opens the opportunity for various investors to consider traditional portfolio mixes like the '60/40' allocation – a portfolio comprising 60% growth assets (such as shares) and 40% income assets (including bonds and cash).

These 'balanced' portfolios, a mainstay for investors over many decades, historically provided returns close to those of fully invested shares but with materially lower volatility.

There will always be uncertainty regardless of the year or asset type. It’s an inherent aspect of wealth-building and investing. Risk and reward are intertwined, which is a reminder of why it’s important to ensure you have a cash buffer (also known as an emergency or contingency fund).

Ensuring your day-to-day finances are well-managed, living within your means, maintaining an emergency fund, and preparing for potential changes is crucial, especially when dealing with debt, such as a mortgage, given the challenges posed by rising mortgage rates.

Fortunately, investors today can now at least get some return on their cash investments. While not ideal for significant long-term investments, cash serves as a valuable tool for managing short-term savings and investment needs.

You'll encounter this advice repeatedly, as the fundamentals of investing remain unchanged and so does the message. Don’t keep your eggs all in one basket. Maintaining diversification is crucial for effectively managing risk and cultivating stable, long-term returns.

Who predicted Japan to emerge as one of the top-performing share markets in 2023? Or the US 10-year treasury yields surpassing 5%? If there's a central theme to grasp from this message, it's that predicting tomorrow's outcomes, whether in terms of shares, share markets, countries, or asset classes, is inherently uncertain.

Diversification ensures you’ve got a mix across all these factors, with investors getting the most value when the combination of asset types aligns with their investment time horizon.

You will hear it over and over. The facts haven’t changed, and neither has the message.

Being diversified is incredibly important in managing risk to build stable long-term returns. While the allure of a substantial gain from a single prediction may be tempting, extensive research indicates that such successes are rarely replicable and are incredibly hard to do over the long term.

After a couple of years where investors deviated from proven, long-term investing habits and instead chased higher risk rewards by trading direct shares, the recent upswing in interest rates has brought a realisation of the potential pitfalls associated with short term trading versus long-term investing.

We would define short term not only as day trading and chart watching but also as substantial portfolio changes more than annually. The effort isn’t statistically justified and rarely rewarded beyond an occasional dopamine hit.

Consequently, there has been a shift back towards more 'boring' but sound investment habits.

The era of meme-stock rallies has waned. The enduring investment philosophy championed by Vanguard's Jack Bogle, advocating for low-cost index investing, has experienced a revival among retail investors. Insights on trading platforms in 2023 indicated the biggest buying activity has been for index funds, and funds generally.

Throughout history, there have been brief periods where speculative share trading gained popularity. It often preceded or followed major events such as the gold rush era in NZ, the 1987 market crash, the dot-com bust, and more recently, the surge in share trading activity during the COVID era.

However, these trends eventually subside. A new generation comes to appreciate the true value of long-term investing and the substantial impact of an average 8-10% return compounded over decades.

It's encouraging to observe investors returning to a long-term mindset, opting to purchase a few well-diversified, low-fee funds that provide market exposure. They know there is always uncertainty, and no one can fully predict what will happen tomorrow. 

Investors are becoming more aware of what they can control - their behaviour and habits. They’re opting to focus on putting money into their investment accounts and just adding to it, then not touching it or messing with it for decades.

We expect this will continue in 2024.

As you contemplate your aspirations for the years ahead, focus on what you can influence to bring you closer to your goals. Maintain a healthy scepticism toward forecasts and sensational headlines; uncertainty and bumps in the road are inherent aspects of being an investor.

Prioritise diversification to manage risks effectively. Keep a vigilant eye on fees and transaction costs, as they can erode your returns over time. And, most importantly, embrace the wisdom of the tortoise – often the steady and consistent approach prevails in the end.

Disclaimer: The information provided in this article should not be relied upon as investment advice or recommendations and should not be considered specific legal, investment or tax advice. Any information provided is general only and current at the time of writing.