Why Long-Term Investors Should Stay Focused?
Lyfords quarterly newsletter reviews key financial market events that have impacted portfolio returns.
Each quarter we have an article on a financial issue we believe will interest our clients.
In addition we often post news updates and blogs on our web site at https://www.lyfords.co.nz/news-blog/
For clients who have transferred, or are looking at transferring their UK Pensions to New Zealand, updates relevant to this are posted at https://www.uk-pension-transfer.co.nz/qrops-news-blog/
The first quarter of 2026 reminded investors that markets do not move in straight lines. After several years of strong returns, global share markets experienced a pullback as geopolitical tensions in the Middle East triggered a sharp rise in oil prices and renewed concerns about inflation. Despite the volatility, the key message from Lyford Investment Management is clear: history suggests that investors who remain disciplined and focused on the long term are usually rewarded.
2026.Q1 Economic Commentary – DOWNLOAD the full pdf version NOW.
What Drove Market Volatility?
The primary catalyst was the conflict involving Iran, which disrupted shipping through the Strait of Hormuz, a critical global energy route. Oil prices surged from around US$70 per barrel to more than US$100, raising fears of higher inflation and slower economic growth. As investors reassessed risks, both share and bond markets came under pressure.
Markets responded positively when ceasefire discussions emerged in early April, highlighting how quickly sentiment can shift when uncertainty begins to ease.
Are We Facing Another 1970s-Style Oil Crisis?
Lyford argues that comparisons with the 1970s oil shock are overstated. While energy prices rose sharply, the increase was significantly smaller than the 300–400% surge experienced during the OPEC oil embargo.
The current situation appears more like a temporary cyclical shock than the prolonged stagflationary environment that characterised the 1970s. Assuming energy supply disruptions ease, the long-term economic impact is expected to be far less severe.
History Suggests Markets Recover
One of the report’s key insights is that major geopolitical events have not historically prevented long-term market growth.
Looking at events such as the Gulf War, the Iraq War, the September 11 attacks, and Russia’s invasion of Ukraine, the average return of the S&P 500 over the following three years was approximately 11.4% per annum. While every event is different, history shows that markets often begin recovering before geopolitical situations are fully resolved.
Artificial Intelligence Remains a Long-Term Growth Theme
AI continued to be a major investment theme during the quarter. However, investors became more selective.
Rather than rewarding companies simply for being associated with AI, markets increasingly focused on businesses that could demonstrate clear profitability, productivity gains, and realistic paths to monetising AI investments. Companies showing tangible earnings benefits outperformed those relying primarily on future potential.
New Zealand Outlook
Closer to home, the New Zealand economy remains in the early stages of recovery.
The Reserve Bank kept the Official Cash Rate unchanged at 2.25%, acknowledging that recent inflation increases were largely driven by external factors such as energy costs and local administered prices. While inflation may temporarily rise due to higher oil prices, policymakers currently expect these pressures to ease over time.
The economic recovery that many expected to gain momentum in early 2026 may now be delayed until later in the year or into 2027, depending on developments in global energy markets.
Market Performance Snapshot
Key asset class returns for the quarter included:
New Zealand shares: -4.5%
International shares: approximately -3.5% to -3.7%
Emerging market shares: broadly flat
Australian shares: +1.9% for New Zealand investors
New Zealand and global bonds: modest negative returns as bond yields rose.
Despite the weak quarter, longer-term returns across most asset classes remain strong. International shares, for example, delivered annualised returns of around 12–14% over the past decade.
The Key Takeaway: Zoom Out, Not In
Periods of uncertainty can feel overwhelming when viewed day by day. Lyford’s central message is that investors should resist the temptation to focus on short-term market movements.
Successful investing is built on maintaining a well-diversified, low-cost portfolio and remaining committed to a long-term strategy. History shows that markets have consistently recovered from wars, geopolitical crises, recessions, and other shocks. For long-term investors, staying invested through volatility remains one of the most effective ways to build wealth over time.
Blogs posted since our last newsletter:
Why Asian share markets are more affected by Iran?
Why is property not such a good investment in 2026?
2026.Q1 Economic Commentary – DOWNLOAD the full pdf version NOW. A lot of time and effort goes into these Newsletters to provide up-to-date information and thought provoking articles.