Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 190

Preparing for the ups-and-downs of 2017

After the rollercoaster of investment emotions that was 2016, investors have been cautiously embracing a more upbeat feeling across markets so far this year.

Perhaps it is wishful thinking, but it seems many pundits and punters alike are growing comfortable with the fact that, although the world looks a lot different to what it did a year ago, it’s not all doom and gloom where investing is concerned.

Although a market rally can certainly buoy hopes for a more stable year, we should remember that last year was certainly no slouch for returns, despite medium-to-long-term forecasting pointing to market returns lower than historical averages, underpinned by slowing global economic growth.

In fact, the broad Australian sharemarket returned more than 11% last year, despite early concerns that China’s slowing economic growth and softer commodities prices would hurt the local economy.

Resilience is conditional

With that example in mind, it can be comforting to think that our investments might be more resilient than expected. Diversification and discipline are essential to 'future proofing' a portfolio, allowing it to weather oscillating markets by being more resilient in the face of volatility.

Diversification allows investors to spread risk and avoid a catastrophic hit to their portfolio if they are over-exposed to a single company, sector or market that tumbles. Having exposure to multiple countries, industry sectors, varying market caps and asset classes (e.g. equities and fixed income) gives portfolios a better chance at carrying on should only a portion of its holdings go through a cycle of underperformance, or loss.

While diversification acts as a shock absorber for a portfolio, discipline is the key to letting diversification do its job of managing risk. By avoiding the temptation to follow market trends, either by selling an asset when its value falls, or buying an asset that’s on an upward march, investors can remove perhaps the riskiest factor that can hammer potential returns: human behaviour.

Human behaviour, particularly fear and temptation, are what can drive investors to make ill-considered decisions in times of market fluctuation. We saw this last year when many investors sought to flee UK equities ahead of the Brexit vote, only to miss out on a fairly quick recovery in that market. An investor with a broad exposure to the British sharemarket would have likely been better off gritting their teeth through the tumult and seeing it through to the other side.

Vanguard’s global CEO, Bill McNabb, discussed this recently with The Evidence-Based Investor, outlining how Vanguard approaches market flashpoints like Brexit in terms of understanding risk, rather than trying to work out trading strategies to minimise damage or maximise opportunity.

In a recent letter to investors, the full version of which is featured below, McNabb also outlined the need for investors to be prepared for future volatility, saying that surprises should be expected in 2017. Although Vanguard isn’t in the habit of offering ‘hot tips’ for investors, McNabb outlined in his letter these four pieces of advice to help investors navigate uncertainty and set themselves up for investment success.

 

Valley Forge, Pennsylvania

9 January 2017

 

As we begin 2017, I'm struck by the questions we've been receiving from our investors. Never before — not even during the Global Financial Crisis — have investors come to us with such specific concerns about the movements of the markets and governments around the world.

 

We're living in unprecedented times, so we certainly can't predict what this year will bring. And if you know Vanguard, you should know not to expect ‘hot tips’ or ‘sure bets’ from us either. But I do have four suggestions that I believe can help investors reach their goals.

 

1. Prepare for uncertainty. Several political and economic events caught observers by surprise in 2016, including the results of the Brexit vote in the United Kingdom, the presidential election in the United States and the federal election in Australia. Markets respond to surprises with volatility, and we expect more surprises in 2017. With a new US administration comes the potential for changes to policies that affect investors. Some may be beneficial; some may trigger market volatility. The best approach in any environment is to maintain a long-term perspective and a balanced and diversified portfolio.

 

2. Save more. In addition to potential near-term volatility, we expect the equity and bond markets to produce lower returns in the next ten years than they have over the past several decades. This will place the burden on investors to save more. Saving more is an asymmetrical proposition: If you don't save enough and the markets don't assist you, there's nothing you can do. If you over-save and do well, great – you can retire a few years earlier.

 

3. Safeguard your assets. As the threat of cybercrime continues to grow, we work hard to protect our clients' assets and data. But investors must be aware of the risks and take precautions too.

 

4. Stay well-informed. Great investors understand how all the pieces fit together. Become familiar with all the components of your portfolio and know the role that each one plays in your investment plan. Stay abreast of the markets and economy but don't be driven by their movements. I realise it sounds paradoxical to say, "Stay current but resist the urge to act." But that's exactly what you should do.

 

Here's to a prosperous 2017.

 

William McNabb III, Chairman and Chief Executive Officer, The Vanguard Group, Inc.

 

Robin Bowerman is Head of Market Strategy and Communications at Vanguard Australia. This article is general information and does not consider the circumstances of any individual. Vanguard is a sponsor of Cuffelinks.

RELATED ARTICLES

Platinum's new international funds boss shifts gears

Rising recession risk and what it means for your portfolio

Five factors driving the great Australian recovery

banner

Most viewed in recent weeks

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Super crosses the retirement Rubicon

Australia's superannuation system faces a 'Rubicon' moment, a turning point where the focus is shifting from accumulation phase to retirement readiness, but unfortunately, many funds are not rising to the challenge.

Latest Updates

Investment strategies

Why I dislike dividend stocks

If you need income then buying dividend stocks makes perfect sense. But if you don’t then it makes little sense because it’s likely to limit building real wealth. Here’s what you should do instead.

Superannuation

Meg on SMSFs: Indexation of Division 296 tax isn't enough

Labor is reviewing the $3 million super tax's most contentious aspects: lack of indexation and the tax on unrealised gains. Those fighting for change shouldn’t just settle for indexation of the threshold.

Shares

Will ASX dividends rise over the next 12 months?

Market forecasts for ASX dividend yields are at a 30-year low amid fears about the economy and the capacity for banks and resource companies to pay higher dividends. This pessimism seems overdone.

Shares

Expensive market valuations may make sense

World share markets seem toppy at first glance, though digging deeper reveals important nuances. While the top 2% of stocks are pricey, they're also growing faster, and the remaining 98% are inexpensive versus history.

Fixed interest

The end of the strong US dollar cycle

The US dollar’s overvaluation, weaker fundamentals, and crowded positioning point to further downside. Diversifying into non-US equities and emerging market debt may offer opportunities for global investors.

Investment strategies

Today’s case for floating rate notes

Market volatility and uncertainty in 2025 prompt the need for a diversified portfolio. Floating Rate Notes offer stability, income, and protection against interest rate risks, making them a valuable investment option.

Strategy

Breaking down recent footy finals by the numbers

In a first, 2025 saw AFL and NRL minor premiers both go out in straight sets. AFL data suggests the pre-finals bye is weakening the stranglehold of top-4 sides more than ever before.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.