In the earlier years, do not be alarmed by market declines.  Investing is an emotional experience, which is where advice can help.  Bull and bear markets (significant rises and significant declines in price) will likely happen during your saving years.  Think about it – you would probably much prefer to see declines in the early years, while you have less money and are adding every year or every pay period.  Assuming what you are investing in goes up over time, you want to have prices at their lowest when you are buying and at their highest as you approach retirement.  Emotionally, we like to see our money grow, even in the early years, but logically we should recognize that when we are “putting pennies in the jar”, lower prices are a good thing as long as we believe markets will go up over time.  If we do not believe that, then we shouldn’t be investing.  

David Fuller's view

Here is a copy of Rod Smyth's Letter.

Inevitably, there is a significant element of luck with investing. Catch a market or sector at the beginning of a long-term economic expansion and you do exceptionally well, particularly if dividends are reinvested.  Conversely, commence investing in what eventually proves to be the top of a long-term cycle and you could be lucky to break even. 

It is the same with many developed country government bond markets which have enjoyed tremendous bull trends over the last 35 years.  I think the next 35 years are likely to be distinctly mediocre.

Art has always interested me but it also has a big element of fashion, in addition to doing much better during inflationary rather than deflationary periods.    

My children in their 40s, who live in London, have mainly invested in their homes and done very well despite mortgage costs.  However, London is not typical having tremendous bolthole appeal, which has so far ensured that demand way outstrips supply.  In Tokyo, property investors made fortunes during the 1960s through the 1980s, but have seen valuations plummet since 1990. 

What can we say about investments going forward?

One should favour investment diversification.  It makes sense to invest in a home in a region where fashion and particularly population are increasing.  However, for those who live in areas of decreasing population, it may make more sense to rent, at least when one is young. I would avoid bonds.  If your children or grandchildren are interested in stock markets, I would teach them how to read price charts on a practical, factual basis.  Technology and biotechnology are very likely to remain growth sectors, although obsolescence can be a more frequent problem.  With newer companies, look for successful founding managers rather than fashionable sectors, and be wary should management change.