Omicron shouldn't drive investment decisions
The announcement of a new strain of the COVID virus has not only introduced us to yet another letter of the Greek alphabet, it’s also fueled a wave of fresh concerns. It’s understandable for example, that holidaymakers may put plans for global travel on pause until we know if Omicron is going to mean tighter border controls.
The arrival of the Omicron variant has also driven a round of sharemarket sell-offs. It saw the ASX 200 Index drop from 7,407 in late November to 7,225 by 3 December 2021 – a 2.4% fall.
It’s a sign investors are spooked by the latest COVID variant. And big news often brings knee jerk reactions. For investors, these on-the-fly responses can be expensive. Bailing out of investment markets on the back of short term news means paying additional brokerage costs. It can also set you up for capitals gains tax if the shares are sold for a profit.
Sharemarkets have an uncanny habit of bouncing back over time. So, pulling money out of quality shares when the latest news undermines investor confidence, can see you miss out on future market upswings. And you’re likely to pay a lot more just to buy back into the same shares or exchange traded funds further down the track.
The thing is, news travels at exceptional speed in the digital age. By the time you and I have read about something, it’s almost certainly been factored into asset markets. So selling up doesn’t mean you’ll beat a downswing. Rather, you’ll be part of it.
I have no idea how the pandemic will play out. I suspect no one really does beyond the likelihood that life will eventually return to something approaching normal.
What I am certain of, is what I want from my investments. And my portfolio reflects this. My financial goes haven’t changed through the pandemic, so why start selling off assets on the basis of short term news?
The bottom line is that the pandemic will bring bursts of good news, and just as inevitably, developments that are cause for concern. But if your goals, circumstances and appetite for risk haven’t changed, there’s likely no need to adjust your portfolio. Doing so could just put you a step back from achieving your financial goals.
Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.
Frequently Asked Questions about this Article…
While it's natural to feel concerned about the Omicron variant, it's important for everyday investors to avoid making knee-jerk reactions. Selling investments based on short-term news can lead to additional costs and potential tax implications. Instead, focus on your long-term financial goals and avoid making hasty decisions.
The announcement of the Omicron variant led to a round of sharemarket sell-offs, causing the ASX 200 Index to drop from 7,407 in late November to 7,225 by December 3, 2021, marking a 2.4% fall. This reflects the initial investor reaction to the news.
Selling investments during market downturns can be risky because it often involves additional brokerage costs and potential capital gains tax if shares are sold for a profit. Moreover, markets have a tendency to bounce back, and selling during a downturn could mean missing out on future gains.
If your financial goals, circumstances, and risk appetite haven't changed, there's likely no need to adjust your investment portfolio due to the pandemic. Making changes based on short-term news could hinder your progress toward achieving your financial objectives.
In the digital age, news travels exceptionally fast, and by the time you read about an event, it's likely already factored into asset markets. Selling investments based on news doesn't guarantee you'll avoid a downswing; instead, you might become part of it.
Despite the emergence of COVID-19 variants like Omicron, sharemarkets have a history of bouncing back over time. Maintaining a focus on long-term investment goals rather than reacting to short-term news can help investors benefit from future market upswings.
Investors can avoid costly mistakes during volatile times by staying focused on their long-term financial goals and avoiding impulsive decisions based on short-term news. It's important to remember that markets tend to recover, and maintaining a steady course can be more beneficial.
Before making changes to their portfolio, investors should consider whether their financial goals, circumstances, and risk tolerance have changed. If these factors remain the same, it may not be necessary to adjust the portfolio based on short-term news events.
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