Tag Archives: Investment Strategy

Market Insight – Staying the Course

By visual /May 13,2020/

While it can be hard to stay in the market when share prices plummet, now is not the time to panic.

The COVID-19 (coronavirus) pandemic has triggered a share market crash, in Australia and internationally. Since 31 December 2019, when the first cases of the new virus were reported in China’s Hubei province, the disease has spread rapidly to Europe, UK, North America, Asia, the Middle East and Australia.

We’re now seeing extraordinary disruption to economies and societies, at home and abroad, and the effect on share markets has been substantial. They’ve suffered major falls across all regions, as supply chains are disrupted and business activity is restricted.

It’s possible they’ll remain low or fall further as the shutdown measures put a squeeze on companies’ turnover and profits and damage consumer confidence. The Australian dollar has also fallen significantly against the benchmark US dollar.

At times like these, it can be easy to make knee-jerk decisions, but rash short-term thinking can often be counter-productive.

Fear-driven decision making

Seeing the value of your investments go down is never a pleasant feeling. Given the fear and uncertainty COVID-19 has caused in the community, many investors may feel panicked about the state of their portfolio.

Cutting your losses and moving your holdings into cash may seem a tempting option at this time. The emotion is understandable but allowing it to drive your decision making may not serve you well in the longer term.

Different assets classes produce different returns, at different times in the market cycle. A diversified investment strategy is often the surest way to grow the value of your portfolio over the long term.

You can also further diversify across fund managers and investment styles, so your portfolio is less vulnerable to a falling market. Different investment styles always perform differently throughout the investment cycle.

Moving your money into cash now, when the share market is so volatile, may only crystallise any losses and could leave you with insufficient funds to meet your long-term financial goals, such as having enough to retire on. And being out of the market may mean that you miss out when the market starts to recover again. Timing the market is almost impossible.

Legendary investor Warren Buffett is well known for his investment philosophy and strategy of holding the course when markets fall – and he’s one of the world’s most successful investors. One of his famous quotes is “our favourite holding period is forever”.

Dramatically changing course

While COVID-19 represents new territory for investors and businesses, chances are the market will stabilise in the medium to long term, that is, over the next three to five years. History has shown time and again that share markets have the ability to recover from significant market events and be a source of returns in the long term.

Reminding yourself of your long-term goals can be a good way to counter any sense of panic the current situation may have generated around your personal finances and investments.

Going it alone

Now isn’t the time to go it alone. We’re available to talk through any concerns you may have, as you navigate the continuing uncertainty the next few months have in store for all of us, financially and personally.

Financial advice is critical in uncertain economic times.

Source: IOOF

The value of sound financial advice in these challenging times

By Robert Wright /April 29,2020/

In addition to the terrible health consequences, the coronavirus is having a massive impact on global economies and the way we live, work, and interact with each other.

Loss of income and uncertainty about the future can place a great strain on households, relationships and finances. For those affected, it can be overwhelming.

For those approaching or already in retirement, sharp falls in share markets can lead to sleepless nights about their retirement plans and whether they will have enough income to live comfortably.

In times like these, seeking professional financial advice is essential. We can help you to:

• Assess your current financial situation, review your income and expenses, and develop strategies to manage your cash flow more effectively.
• Make the most of any severance pay or redundancy payment.
• Identify any government support payments you may be entitled to receive and assist you with the application process.
• Assist you with practical strategies to consolidate and eliminate debt.
• Review your circumstances and assess whether early access to your superannuation savings or early retirement may be a suitable option for you.
• Review your retirement strategy to determine whether it continues to meet your near and longer term needs and objectives.
• Develop and implement a detailed financial strategy for your future personal and financial wellbeing.

Avoid making emotional or impulse decisions

It’s natural to feel anxious in turbulent times, however it’s important to make carefully considered decisions when it comes to your finances and investments. An emotional or impulse decision in the short term will rarely benefit your financial wellbeing over the longer term.

Sound financial advice can be life changing

Sound financial advice really can make all the difference. As qualified professionals, we understand the complexities of financial planning, the world of investments and the various support packages available from the government.

We are available to help you, or someone you care for to make the most of a difficult situation and to navigate a path forward.

Now isn’t the time to go it alone.

How investors can respond to stock market shocks

By Robert Wright /April 14,2020/

If the threat of a large-scale outbreak of an infectious disease isn’t enough to worry about, the financial implications of coronavirus is also making investors nervous.

You may have read about how the shutdown of industry across China, effectively the world’s manufacturing hub, risks hurting the global economy. You may also have heard about large falls in global stock markets, in addition to the price of commodities such as oil. It feels like there’s been no shortage of alarming twists.

Despite this, a market correction can even be a good thing in the long run. In this article, we share how coronavirus may impact investments and how investors can respond to market shocks.

Why does coronavirus affect stock markets?
There are a few reasons. The first is because it is impacting the ability of companies to produce goods. For example, Apple has already said that factory shutdowns in China will prevent it from getting hold of some of the parts it needs to make iPhones.

The second is in how it affects demand. For example, consumers and companies are cutting back on unnecessary travel, hurting the travel and tourism sectors. Many other sectors are also experiencing a fall in demand, such as the hospitality industry, as more organisations are encouraging staff to work from home.

The third is the impact on investors’ willingness to take risk. Before the coronavirus crisis, the stock market had been performing very well and many investors were sitting on considerable profits. This was despite economic growth having been relatively weak for years.

Many investors had been uncomfortable with how far stocks had risen against this backdrop. Coronavirus has given them the reason they were looking for to bank some of those profits and reduce their exposure to the stock market.

What is the silver lining for investors?
Those with a longer investment horizon can worry less as investing is a long-term game. That is not to say someone with investments should just ignore current volatility though. There are some sensible steps to take, and there might even be opportunities for the brave.
While negative headlines about the stock market can be off-putting, investors should be grateful for them. Every dollar invested today could buy considerably more shares than it would have done at the start of the year.

Five sensible steps to protect your investments

1. Don’t panic – think long-term
It’s important to make considered decisions when adjusting your investment portfolio. An emotional response will very rarely benefit your savings. By staying invested now you could benefit when the market picks up again.

2. Reassess your attitude to risk
What these episodes can usefully do is prompt a re-evaluation of how much risk we are willing to take. It’s all very well charging into the stock market when it’s been going up for years: these corrections remind us there can suddenly be a downside. Many of us will take some risk in the hunt for higher returns, and there are ways to moderate that risk.

3. Reassess your portfolio
Are you happy with the mix of risk? Check you are happy with the proportion of your savings that are in the stock market as opposed to cash or government bonds, and diversify if you are concerned. Some funds offer ready-made diversification by spreading across asset classes. Do your research. You could de-risk yourself by simply holding more cash in savings accounts but be aware of the effect of inflation versus interest rates.

4. Diversify your exposure to the stock market
Even within the portion of your portfolio that is invested in the stock market, be sure that it is diversified in itself. Some people have pet regions or sectors and over-reliance on them can be a set-up for big losses if things go wrong. Either diversify yourself or choose managed funds that are themselves diversified.

5. Drip-feed
By investing a regular amount each month you take away a lot of risk – it is the opposite of trying to time the market. In times of stock market falls the amount you invest will be picking up more units. This means you will ride out much of any market volatility.

Source: Schroders, March 2020

Retirees, COVID-19, and options on the table during a market crash

By Robert Wright /April 14,2020/

The spread of coronavirus has been followed by some of the biggest plunges in share markets since the Global Financial Crisis (GFC), both here in Australia and around the world.

There’s nothing new about a market correction, but for those close to retirement it can be a nerve-wracking experience. If you’ve checked your superannuation balance over the last week, you may need a stiff drink.

For investors, or anyone with super, the general advice is to hold your nerve. Selling out at a low will lock in losses. Market corrections are quite normal and share market pullbacks provide opportunities for investors to buy cheaper stocks that will rise in value over time.

Yet “hold tight” may be easily said to younger or middle-aged Australians accumulating wealth in the super system; but what about our ever-increasing pool of retirees? Do they have the luxury or the option to weather corrections such as this?

For younger Australians currently making regular contributions to super, the impact of large sell off is minimised for two key reasons. Firstly, there is plenty of time to wait until markets recover, and secondly, they also may benefit from buying cheaper assets at the bottom of the cycle.

Yet for retirees there are no such luxuries. While markets are down, every dollar of income drawn on from super is crystallising the loss at a market low point, this is commonly referred to as ‘sequencing risk’ and is the reason why retirees need to be more careful than those in accumulation phase.

We as a species have evolved with embedded natural instincts to flight or fight in times of crisis. The tendency for retirees to watch their investments closer and have a greater care-factor for their investment outcomes makes a lot of sense – they are less capable of replacing these savings. However, as a result, there can be a flight to safety at the worst possible time. Known as ‘behavioural risk’ this is the observation that investors tend to switch out of risky assets near the lows of the market cycle.

The spread of coronavirus and the resulting fall in markets highlights the importance of investors understanding how much risk they are holding in their super or pension account. Australians in or approaching retirement, who have sat up and taken notice of the recent market plunge, may now be wondering, what is the right amount of risk to hold in their investments?

Our view is that the decision to reduce risk needs to be traded off with the impact of potentially lower long-term returns.

With record low interest rates and bond yields, the future return expectations on traditional safe-haven assets is lower than ever, strengthening the concept that if risk equals return, no risk equals no return! And with our life expectancy ever increasing with advances in medicine, science and technology, our retirement savings need to support our lifestyle longer.

Investors looking to reduce downside risk, but concerned about the impact on long term returns, could consider some of the following options:

• Diversifying into non-traditional income generating assets, such as infrastructure assets
• Remaining in equities, but adding protection
• Checking investments are being optimised for retirement tax treatment
• Remaining in growth assets but increase diversification into growth-alternatives
• Consider a strategy that dynamically adjusts the asset mix based on the environment

But most of all, with any of the above, our view is that right now is most likely not the right time to make a reactionary switch. Let the dust settle and move gradually over time.
Retirement is about enjoying life without the obligation to work. For your investments retirement is also about considering your own personal appetite and capacity for risk, the cost of suffering large portfolio losses, and the impact of not earning sufficient return.
It’s a balancing act, but with the right help, entirely achievable.

Source: AMP Capital