Investment lesson 2024: Global diversification key for better returns – Mark Lister

If you left your hard-earned dough sitting in the bank, the return from cash in 2024 was 5.6%, writes Mark Lister. Photo / 123rf

THREE KEY FACTS

• Mark Lister emphasises the importance of globally diversified investments in 2024.
• The NZX 50 index returned 11.4%, but US shares rose 41.2% in New Zealand dollar terms.
• The New Zealand dollar fell 6.7%, enhancing international asset returns for New Zealand investors.

There were plenty of lessons for investors in 2024, as is the case every time we close the book on a calendar year.

The one that stood out for me was the need to ensure your investments were globally diversified.

If you didn’t do that and instead hunkered down in New Zealand assets, you didn’t enjoy the success you could have.

The local sharemarket had a great year in the end, with the NZX 50 index returning 11.4% in 2024.

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That’s above the long-term average and it was the best performance since 2020.

Almost all the gains came in the second six months of the year, when the Official Cash Rate finally started coming down.

Domestic fixed income was impressive too, with the NZX Corporate Bond Index up 7%.

That came on the back of a 7.5% increase in 2023, which was the highest since 2014.

Property didn’t fare quite as well, with national house prices falling marginally last year and the listed property sector down 3%.

If you left your hard-earned dough sitting in the bank, the return from cash in 2024 was 5.6%.

Most of those returns are solid, but when you compare them to some international assets, they look a little disappointing.

World shares were up 18% last year, led by the US market, which rallied 25% (on the back of a similar gain in 2023).

Japanese shares were up 21.2%, the Australian market rose 11.4% while European, UK and emerging market equities posted high single-digit gains.

All those sharemarket returns include dividends, just like the NZX 50.

US Treasury bonds were flat and outside of the mainstream, gold rallied 27.2% and Bitcoin surged a staggering 123.5%.

There are some big numbers within that group, especially for a mere 12 months.

When you account for currency moves, it really rubs salt in the wound.

The New Zealand dollar was down 6.7% on a trade-weighted basis last year, declining against all our major trading partners.

It fell hardest against a resurgent greenback, falling 11.5% over the course of the year from US$0.63 to $0.56.

That means American assets were stronger still in New Zealand dollar terms, with US shares up a staggering 41.2% in 2024.

The currency was down 10% against the British pound, 5.6% against the euro and 2.5% against the Australian dollar too.

Those moves pushed the annual return from their respective regions up into the 15-20% zone.

Whether it’s houses, shares or commercial property that spin your wheels as an investor, the lesson is the same.

If you had too much (or worse still, all) of your capital in local assets, you did yourself a disservice.

It’s true, 2024 was just one year and New Zealand won’t always be a laggard.

The NZX sharemarket did well but other countries' did better. Photo / NZME

After all, in the decade leading up to the pandemic, local shares outperformed international markets on seven out of 10 occasions.

However, we’ve fallen behind since then as our economy has struggled more than most.

As workers, homeowners and small business owners, there’s not much we can do but stick it out and wait for things to improve.

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Investors don’t face those same constraints and it’s never been cheaper or easier to spread your wealth across greener pastures.

The NZX 50 is up 14.1% these past five years, while house prices are 25.2% higher.

That sounds reasonable when put like that, but the per annum returns (of 2.7% and 4.6%) are less inspiring.

Meanwhile, US shares have almost doubled over that period, the Japanese market is up 86% and Australia and Europe have returned about 45% each.

If you’ve been hunkered down in New Zealand assets in recent years, the gains you’ve needlessly left on the table are significant.

We live in a great country and there’s a more prosperous period ahead for us, but there’s no need to be “all in”.

The mobility of your capital means the world is your oyster and investors should take advantage of that.

These last few years are an example of why.

Mark Lister is investment director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.