It's that time of year again when everyone loves to make a prediction. And with the S&P/ASX 200 Index (ASX: XJO) down nearly 6% this year, many are painting even bloodier scenes for what may come for ASX shares in 2023.
Last month, banking giant Deutsche Bank pulled back the curtain on its forecast — expecting a 25% plunge sometime next year. Last week, Blackrock — one of the world's largest asset managers — suggested investors should avoid investing in shares altogether next year and go after bonds instead. Now, an independent Australian sovereign wealth fund is casting its own doubts on equities.
The Future Fund — home to more than $200 billion dollars of assets — is moving away from investing in companies. In a paper, the fund lamented the end of the 'traditional portfolio construction', pointing to a 'new investment world'.
Same siren, different decade
Can you hear the alarm bells ringing? Are you overwhelmed with fear? Are you convinced that investing is a worthless endeavour for your future wealth?
The world is in a terribly unpredictable state right now, without a doubt. However, I would caution against taking 'smart money's' word for what will come during our next trip around the sun. It may not pan out as they proclaim.
Here's an example…
Ray Dalio is an incredibly successful investor, making billions through his hedge fund Bridgewater Associates. In his career, Dalio was accustomed to building robust models for making investment decisions with a high degree of confidence.
After executing many successful trades and investments, Dalio was faced with the high inflation and interest rate environment of the late 1970s and early 80s.
As explained in his book Principles: Life and Work, Dalio was convinced that the US would be forced into a depression as bad, if not worse, than that of the 1930s. As such, the investor went heavy into gold and bonds, believing it would outperform investing in shares.
To Dalio's dismay, he was dead wrong…
The United States economy began to grow again while inflation fell. As shown above, the S&P 500 produced returns in excess of 1,000%, basking in nearly two decades of noninflationary growth.
How did Dalio get it so wrong?
Instead of letting the entire global financial system collapse, debts were restructured and bad debts were written off over a long time span. This helped mitigate the concentration of financial impact on economies.
Why I'd keep investing in ASX shares
There is no shortage of doom and gloom for 2023. However, I'm of the mind that the pessimists have it wrong again, just like Dalio had it wrong in 1982.
Sure, we might see ASX shares move lower again next year. But do I think the value of investing will fundamentally change for the next 10, 20, or 30 years ahead? My answer is no.
I'm of the belief that humans will continue to solve the problems we are faced with. In turn, unbelievable value and wealth will be created in doing so.
Why do I think this?
Because there are still plenty of problems to be solved. It may not be the most elegant explanation, but sometimes simplicity is all that is needed.
