As I write this, the US is headed for it’s biggest one-day sell off since October 1987. This is on the back of a sell off in recent weeks resulting in global markets falling 20% – 30%. We are now in a bear market in both the US and Australia.
When Scott wrote an article in the early stages of this correction, he feared that the virus could have a contagion effect to other areas of the economy. These fears are panning out to have been warranted. Travel, education, manufacturing and many other sectors are significantly impacted.
Governments and central banks have reacted quickly with stimulus packages and border lockdowns. The impact of these measures remain to be seen, but it’s fair to say that markets have shrugged them off, continuing their race to the bottom.
Interestingly, the gold price, which often thrives in these situations, has remained subdued. I suspect there is a complete “risk off” approach to markets currently, meaning even the investment in the normal safe havens of precious metals is perhaps seen as too risky.
Fundamentally, the Australian Sharemarket now looks undervalued, and while we have been investing small amounts into this market, it is certainly understandable that even the bravest are taking a “wait and see” approach.
What should you do?
Fear is the prevailing natural emotion at this time. If you closely follow your investments, you are likely to feel fear, and perhaps even ill, wondering when this will end and return to normal. What history tells us is that things will return to normal, it just may take some time. Our annual review process for clients are showing a lot of short term negative numbers in the performance figures now, when only weeks ago, the numbers were outstanding!
Our client enquiries and discussions have largely fallen into three categories in recent weeks. It is important to know that there is no one right or wrong answer to this, it’s ultimately about what makes you comfortable.
- ”I’ve been waiting for an opportunity like this, should I buy?”. This has probably been our main enquiry, and we have been drip-feeding smaller amounts into this market. Whether or not better opportunities lay ahead in coming weeks or months, investments made during this correction should pan out well over the long term.
- “This reminds me of the GFC, I think I want to sell everything!”. With limited investment alternatives currently, we haven’t had too many queries like this. During the GFC, you could sell your shares and put the proceeds in a term deposit earning 6%pa. This is not the case now. It is important to remember why you hold the investments you hold.
- “I have faith in the investments I hold, I’m happy to hold on!”. While this may be seen as doing nothing during volatile times, this is probably the option we take for most. We do now know that people who took this approach during the GFC faired very well.
These times require rational decision making. As always, we are here to help you. Please don’t hesitate to contact us, we look forward to discussing your situation with you. Diversification, high quality and rebalancing portfolios in line with your risk tolerance remain of paramount importance as always.