“A wave of new scientific discoveries reveals that learning to lean into uncertainty in times of rapid change is a promising antidote to mental distress.” – Maggie Jackson, New York Times.
Leaning into Uncertainty
The rapidly evolving nature of investing can often lead to unwarranted mental distress and as a result, for many people, uncertainty is something to avoid. But what about the positive things that uncertainty can bring? Without it, there would be no surprises, no joy in watching the All Blacks or the Silver Ferns.
In investment terms this very ‘uncertainty’ has brought about 10% average annualised returns on the stock market over the last century*. If there were no uncertainty, returns would be predictable and there would be no difference between putting your money in a savings account or investing it in the stock market. We’ve all lived through periods like 2020 and 2022 where the market went down a lot; and periods like 2023 and 2024 where the market went up more than 20%, two years in a row.
The uncertainty about what will happen is what gives rise to the potential reward on investing in stock markets. However, because of uncertainty, we have no choice but to manage risk. At the extremes, some people may try to completely ignore risk, while others might try to eliminate it completely. Then there are those in between.
We can’t control the weather, but we can take an umbrella if it looks like it might rain. We weigh the cost of carrying around an umbrella against the benefit of staying dry. The better we manage risk, the better our lives will be.
When it comes to investing, you can’t control stock market returns, but you can manage the risk you take. By predefining our personal risk profile and our goals we can invest in a more considerate and thoughtful manner.
Our portfolios offer exposure to long-term investment themes with structural tailwinds. Our risk profiles enable investors to gain exposure to these themes through investments in international and domestic equities, while reducing portfolio risk with income-generating assets.
*In US dollars. Based on S&P 500 index annual returns, 1926–2024.
What we’re reading: Investing Through Uncertainty: 5 Lessons in Emotional Discipline | CFA Institute Enterprising Investor