In The Lucifer Principle, Howard Bloom tells the story of four tribes that lived in the Nilgiri hills of India prior to the arrival of the Europeans:

One tribe, the Badaga, were farmers. Another, the Kota, were craftsmen. A third, the Toda, were herdsmen. And the fourth, the Kurumba, made and raised almost nothing at all…But of all four tribes, the one with the greatest economic power was the Kurumba.

While the All Blacks are one of the world’s most successful sports teams, Kiwi rugby fans have learnt not to expect them to win the World Cup at every tournament. Likewise, while the NZ share market has punched above its weight over the years, that doesn’t mean it is going to be a winner every time.

Periodically, pundits declare the death of the 60% stock/40% bond portfolio. Their voices have grown louder lately, amid sharp declines in both stock and bond prices. But we’ve been here before. Based on history, balanced portfolios are apt to prove the naysayers wrong, again.

Approaching the midpoint of 2022, market, economic, and geopolitical conditions all appear fraught. Inflation is hitting 40-year highs, the US Federal Reserve is sharply reversing monetary policy, the pandemic hasn’t gone away, and supply chain woes have been exacerbated by COVID-19 lockdowns in China and Russia’s invasion of Ukraine, with the latter putting the Western bloc the closest to a war footing in decades.

The impact of being out of the market for just a short period of time can be profound, as shown by this hypothetical investment in the stocks that make up the Russell 3000 Index, a broad US stock market benchmark.

A hypothetical $1,000 investment made in 1997 turns into $10,367 for the 25-year period ending December 31, 2021. Over that same period, if you miss the Russell 3000’s best week, which ended November 28, 2008, the value shrinks to $8,652. Miss the three best months, which ended June 22, 2020, and the total return dwindles to $7,308.

A lot of people are stressed out about a lot of things right now. Markets are down. Prices are up for many of the things you need to buy. Interest rates are rising and make it a confusing time to consider buying or selling a house, or making other major financial decisions. This all adds to the stress you may be feeling about your job, the ongoing pandemic, and the health of loved ones.

The year is half over. Or half begun, depending where you fall on the optimism/pessimism scale. Give yourself a pat on the back for getting this far. As we know from 2020 and 2021, things could be a lot worse. But let's not overdo the patting because they could also be a lot better.

Sudden market downturns can be unsettling. But historically, US equity returns following sharp downturns have, on average, been positive.

When it comes to investing, we need to distinguish between two very different types of risk: good risk and bad risk. Good risk is the type that you are compensated for taking. The compensation is in the form of greater expected returns. For example, equities are riskier than fixed-income investments.

Therefore, equities must compensate investors by providing greater expected returns.

We are living in a time of extreme uncertainty and the anxiety that comes along with it. Against the backdrop of war, humanitarian crisis, and economic hardship, it’s natural to wonder what effect these world events will have on our long-term investment performance.

While these challenges certainly warrant our attention and deep concern, they don’t have to be a reason to panic about markets when you’re focused on long-term investing.

The world has been through wars, depressions, financial crises and pandemics in the past century, yet there has been a positive long-term return on stocks. Why does the stock market go up over the long term? It’s pretty simple, writes Ben Carlson. The economy grows over time, and businesses innovate and create wealth.

Around the world, individuals are being asked to take on greater responsibility for their own retirement. In the US, for example, a combination of limited Social Security funding and a reduction in the number of defined benefit (DB) employer plans—historically, the primary retirement savings vehicle for many—is causing investors to make decisions they have never had to face about how to save for retirement.

With broad market indices recently hitting record highs, many investors have expressed fear of investing available cash before a market correction.

Are those fears justified? Is it better to invest right away—“plunge”—or is it better for investors to tiptoe into the market over time, aka “wade?”

In a recent “Strategies” column by New York Times writer Jeff Sommer, Eugene F. Fama shared his thoughts on the behavior of markets—and people—during times of volatility.

Fama, a Nobel laureate who is widely recognized as the “father of modern finance,” spoke about the information markets can provide during times of uncertainty and what inevitably remains unknown.

The enthusiasm for ‘meme’ stocks that gain cult-like social media followings has thrown a spotlight on the ‘lottery effect’ in investing. This refers to people’s willingness to accept extremely poor odds in return for the remote possibility of hitting the jackpot. On one level, the practice seems mad. On another, it appears quite understandable.

Ever been on holiday where the weather wrong-footed you? The brochures promised tropical bliss, so you packed accordingly. Instead, you are greeted by bone-chilling wind and rain. Shivering and exposed, you resemble an undiversified investor.

As with the weather, financial markets can be unpredictable. Yet, in their own glossy brochures, investment providers often promise the equivalent of endless sun. Excited, investors pile in like bucket shop holidaymakers. This rarely ends well.

History is full of surprises, as recent events have shown. The world is complex and the future is messy. Just because we want an explanation does not mean one is in reach. As Ben Carlson writes, basing predictions based on the past is like watching ‘The Sixth Sense’ when you already know Bruce Willis was dead the whole time.

If we have a hard time explaining the past what chance do we have at consistently predicting the future?

We’ve all been conditioned to see meme investors and Wall Street in opposition, but it seems to me that they have a lot in common. Both believe in picking stocks and think they can beat the market. In my mind, the important distinction is that Wall Street stands to make a lot of money off meme investors, simply from trading costs. For those who say apps don’t charge for trading, think about it: When was the last time Wall Street gave away anything for free?

Yes, until very recently, I thought complicated and complex were pretty well synonymous, too, but after reading General Stanley McChrystal’s book, Team of Teams, I was admonished and educated.

The book, ostensibly geared toward leaders in business, walks us through the fascinating philosophical and practical framework required to bring together a myriad of the world’s elite fighting forces in pursuit of a common cause. And the big takeaway for me, that has serious implications in financial planning, was, “Being complex is different from being complicated.”

I have been passionate about investing since I started studying finance in 1977. The first investment class I took was dominated by the Capital Asset Pricing Model (CAPM) of Sharpe (1964) and Lintner (1965). The CAPM says every investor’s ideal portfolio is some combination of the risk-free asset and the value-weight (VW) market portfolio of all stocks, bonds, and other investible assets, and every portfolio’s expected return is a linear function of its beta, which is its sensitivity to the market return. The academic view of investing is far more complicated today.

When the world feels particularly uncertain, you can feel tempted to over-analyse everything in the hope of building a ‘perfect’ portfolio. But a better goal for investors, says communications expert Carl Richards in this short video, is to give up on perfection and build a portfolio that you feel you can live with.