After a positive end to 2019, it would appear we have a tumultuous start to 2020.
Most of what happens in the markets is driven by psychology, by emotions – greed and, especially now, fear. Fear is what seems to have driven these massive losses in the last few weeks, suggesting that a market recovery is as simple as a consequence of a change in perspective.
I suppose the concern from here, though, are the long-term economic effects of businesses needing to close (permanently and temporarily), the loss of revenue and jobs, the cancellation of major events, the ability to travel between countries (people and goods) etc. etc. These effects may be longer lasting and have the potential to push any form of recovery out.
Being on the front line, these issues occupy my mind a lot – and I have the same worries, thoughts and arguments in my head as any one of you (to a more or lesser extent). But no matter which way you view it, the fundamentals of investment (investment 101) hold true. Things such as:
Pull your money out of the market and you have only assured what were previously paper losses
Have a well-diversified portfolio – carrying the ‘right’ amount of defensive assets versus growth assets will afford a level of protection in line with your personal appetite for risk and your longer term objectives
Historical data indicates that the market always recovers, given time
The rates of return used in our financial projections have downturns built into them and to a degree, they account for periods of negative returns
There are some opportunities in a market such as this, there are some companies that will benefit and profit – toilet roll manufacturers for one! We use fund managers with high quality ratings and it is their job to identify these opportunities, take advantage of them and invest your funds accordingly.
So, what can be done? I think we all feel better when we 'do something'. But to my mind, there isn’t a whole lot of action that can be taken at the moment. Instead, perhaps the following tips have the potential to reduce the impact and keep you focused:
Remind yourself of your long term and over-riding strategy – if your strategy involves remaining invested for the longer term then do this. Investment losses are only a problem if you need to take your money out of the markets at a low point. Even those close to retirement will (usually) maintain a long-term investment strategy for their retirement savings (superannuation) and should be able to do so even now.
For investments that can be accessed (investment accounts, pension accounts) – avoid taking any additional withdrawals and if you can reduce your monthly pensions or withdrawals, now is the time to do it
For anybody waiting on adding to their investments or entering the markets, whilst fundamentals would say that the low point is an ideal time to buy or invest, the situation in which we find ourselves is unchartered territory. We are waiting and watching right now – the landscape is changeable and some indication as to the wider effects will need to be assessed before we are comfortable making further investments right now.
Events such as this understandably cause some nervousness and concern. We are contacting people whom we feel may benefit from some reassurance, who might like to discuss the current markets or who may need to make changes (such as reducing pension payments or rates of withdrawal). But this is a busy time so please don’t wait for us to contact you – if you would like to discuss your personal position, thoughts and worries then we invite you to call (0409 254 622) or email (email@example.com).
Above all, and most importantly, we hope that you all stay healthy and well.
Information contained on this web page is of a general nature only and your personal financial position, objectives or needs have not been considered. Please ensure you have the necessary financial, tax and legal advice before acting on this information. Do not rely upon it when making financial decisions.