We live in interesting times. While we’ve known since late last year that tariffs were going to be a key strategy of Donald Trump’s second term, it’s fair to say that the extent of them has caught global investment markets off guard. It seems bewildering that one man is prepared to march his economy headlong into an unnecessary recession.
I wrote an article in early 2020, after a couple of years of excellent returns for international share markets, that it may take a “black swan” event to alter the ongoing march upwards. Lo and behold, along came COVID, creating the mother of all short-term corrections over a few months. History will show sharemarkets rebounded (in fact, history always shows sharemarkets rebounding) and those investors who rode the cycle out barely noticed the COVID “blip” in their superannuation and investment statements.
Those that did lose though, are those who joined the panic selling during February to April 2020. Locking in the losses is arguably the worst strategy during times like this.
The Global Financial Crisis (late 2007 to 2012) occurred early in my career as a financial adviser, and caused many sleepless nights for me. This period of time lasted much longer than the COVID correction, however the same strategy of riding it out held investors during this period in good stead.
It’s impossible to know what happens from here, and I don’t want to be dismissive of how you may be feeling about all of this. Perhaps the best advice in times like these is to limit your exposure to sensationalist mainstream media, and reduce the amount of times you check your portfolio valuation! I think investment markets will be volatile for some time, but for our clients, there are some key fundamental points to remember:
- Most superannuation and investment portfolios contain high quality Australian and international investments. It will be these investments that rebound quickly when investor sentiment turns positive again;
- Direct US exposure is usually obtained in our portfolios through 1 or 2 managed funds or exchange-traded funds (ETFs). That is, direct exposure is normally minimal;
- Our portfolios are often diversified across a range of sectors and asset classes. Fixed interest investments are largely unaffected, and cash (as always) is king! Exposure to these sectors help to stabilise your portfolio and minimise the on-paper losses;
- For retirees, the income generated from your portfolio is arguably more important than what your portfolio is worth. We will be monitoring dividend and interest rates carefully, but at this stage there is nothing to suggest that income from your portfolios will be significantly impacted;
- Our pre-retiree/retiree portfolios are typically “underweight” international shares. For those requiring an ongoing income stream, the low dividend yield on international shares means that we typically have less exposure than most;
- Corrections are a normal part of investing. For the long term investor, periods like this can often create opportunity.
On this last point, it is not uncommon for us to hear “I wish I’d invested more during COVID” or “I wish I’d loaded up on shares during the GFC”. To endure periods such as the one we are currently experiencing, but to see the opportunities that are presented when many high quality investments are trading well below their fair value takes braveness. Markets will eventually turn, and it may well be investments made during these periods that will likely be your standout performers. If you have a long term investment timeframe, and you see this as an opportunity, please reach out to us.
I’ve taken some phone calls in recent days! (keep ‘em coming please!). I’ve loved having rational discussions on so many different topics around current market conditions.
The most common question has been “When or how is this going to end?”. Now, of course, no-one has the answer, but I don’t begrudge anyone asking this. Our advisers and staff have super, investment portfolios and a business that is impacted by this, so we are asking the same questions too.
The best advice I can offer at this point is to talk to us. We don’t have all the answers, and we won’t pretend to. However, we can talk you through how this specifically impacts your situation, and come up with a strategy. Don’t stay away, thinking we are too busy to take your call. This is our job, give us a call if you want to chat!
