By Sam Stubbs, MD of Simplicity. Originally written for Informed Investor.

I have just turned 60, and with age - I hope! - comes a modicum of wisdom. So, with my wise old man hat on, what do I think Trump and the threat of trade wars mean for investors? Well, in my 40 years of experience in investing (I bought my first shares at age 11), I can comfortably say that I am as well equipped to predict the future direction of financial markets now as I was at age six. That means I really have no idea where they will go from here. And no one else does either.

 Why am I so confident that no one has any idea? The answer is simple: how can anyone possibly predict the future direction of something as complex as financial markets? Politics sway them - and that is a gamble of predictions at best. Then there are complex macroeconomic factors - interest rates, trade balances, fiscal and monetary surpluses and deficits, to name just a few. There are even more complex microeconomic and company-specific risks and rewards to boot.

Now that we’ve set the scene, let’s then add in an unprecedented dose of egotism, narcissism, racism, delusional fantasies and outright lies by recently elected and wannabe politicians globally, and you can begin to appreciate how complex it all is. And despite accessing vastly more data than any fund manager, good luck asking ChatGPT what the stock market will do tomorrow.

Predicting markets is a fool's game, evidenced by a long-running survey that many fund managers don’t want you to know about. For 30 years, the Standard and Poor's (or S&P as it’s better known) survey, called SPIVA, has shown how many fund managers have beaten their local market stock index over the long term. The results are readily available online and are eye-opening. Over the last 10 years, 92% of fund managers in Europe underperformed the S&P Europe 350 index, 87% of US managers underperformed the S&P 500, and 82% of Australia managers underperformed the S&P/ASX 200. And the longer the period, the worse the performance tends to be for active managers vs their benchmark.

New Zealand fund managers have performed better than their counterparts overseas, but still don’t scrub up vs their relevant indexes. For the ten years to the end of 2023, 75% of New Zealand fund managers investing in our local share market underperformed the benchmark. This begs a simple question. Would you invest your life savings, or any savings for that matter, in something where you have a 70 - 90% chance of having less money in the long-run, than if you bought the whole market in a low-cost index fund?

I don’t believe that the primary reason for this shocking underperformance is that managers can’t pick stocks. It’s that, even if they do, high fees erode any gains they might have made over the long term. And fees are often significant. For example, a fund fee of 1% doesn’t sound like a lot but remember that’s 1% of the total value of your investments every year. To see just how shocking that is, imagine if annual rates were 1% of your house value. No local body politician would survive that. And at least with rates, they pick up the trash. In contrast, too many fund managers charge a fortune to deliver what can be rubbish returns.

The consequence of all this here in New Zealand is that KiwiSaver managers are on track to make over $1 billion in fees this year. And for that, they need to put aside exactly zero regulatory capital, or have any meaningful shareholder funds. The difference one sees in fees, for funds that are similar in asset allocation and currency hedging is remarkably large. From what I can see on sorted.org right now, the lowest fee for a KiwiSaver growth fund is 0.25%, with the average fee 1.21%. That average is almost five times the cost for - arguably - the same tin of beans. And is the most expensive tin of beans in your supermarket five times the price of the cheapest? For that matter, is the most expensive brand of any food five times the price of the cheapest? Maybe, but to me, it’s a travesty.

So don’t let yourself or your friends feed this greed. Wise up, pay less. History suggests doing so means you have a greater chance of making more in the long run. And it seems to be what the SPIVA studies - and the fact that so much pension money globally is now managed in low fee index funds - are telling us.

So how to best navigate Trump, trade wars and whatever else the world throws at us? It’s very simple. Find the right long-term KiwiSaver and/or Investment Fund for your risk appetite. Dollar-cost average if you can. Pay the lowest fees possible. And ignore the noise that foments the fear and greed to get you to trade, switch and pay higher fees. Make the right long-term decisions and ignore all the hoopla.

This is not rocket science; this is math. As Warren Buffet says, you should be almost negligent in your investments once you have made the right long-term decisions because time in the market is way more important than timing of the market, and compounding interest is the eighth wonder of the world.

The information provided and opinions expressed in this post are intended for general guidance only and not personalised to you. These materials do not take into account your particular financial situation or goals and are not financial advice or a recommendation. This post is not intended to convey any guarantees as to the future performance of any of the investment products, asset classes, or capital markets mentioned. Past performance is no guarantee of future performance. Information is current at the time of posting, and subject to change without notice. Simplicity NZ Ltd is the issuer of the Simplicity KiwiSaver Scheme and Investment Funds. For Product Disclosure Statements please visit our website simplicity.kiwi

*The SPIVA Europe Scorecard Year-End 2023 showed underperformance rates of 92% of large-cap funds compared to the S&P Europe 350 index over the 10-year period ending Dec. 31, 2023. The SPIVA US Scorecard Year-End 2023 showed underperformance rates of 87% of large-cap funds compared to the S&P 500. The SPIVA Australia Yer-End 2023 showed underperformance rates of 83% of Australian Equity Funds compared to the S&P ASX 200 over the 10-year period ending Dec. 31, 2023. All comparisons are based on absolute returns. For the full reports go to www.spglobal.com/spdji/en/spiva/article/institutional-spiva-scorecard