Paul's Insights: COVID crisis encourages investors to diversify
Nine million Australians – 46% of the adult population, own investments outside of their home and super. Of these, 6.6 million people own assets listed on the Australian Stock Exchange (ASX).
Not surprisingly, the pandemic has encouraged many of these investors to re-evaluate their portfolio – especially around diversification and risk management. But despite the massive falls we saw on sharemarkets earlier in 2020, a new ASX survey found that overall, investors have been more likely to increase their holdings of growth assets like shares and exchange traded funds (ETFs), rather than reduce them.
One in two investors have made changes to their investment mix this year. While the response varies across age groups, as a whole, almost one in five sharemarket investors have increased their allocation to Australian shares, with many viewing market volatility as a buying opportunity.
What is especially good to hear is that the events of early 2020 have prompted investors to place a higher priority on diversification. Three out of five (60%) investors now believe they have a diversified portfolio, compared to less than half in 2017.
While the rise in volatility has led investors to re-examine their attitudes to risk, few have become more risk averse. On the contrary, Australians say they are keen to continue building their holdings of listed assets, with 57% of investors planning to invest directly in Aussie shares, and up to 45% having plans to invest in exchange traded funds.
The ASX survey also found that around 900,000 Australians are keen to start investing in the next 12 months. For these investors, my advice is not to overthink the ‘right’ time to get into the market.
Yes, it’s pretty obvious that you should buy when things are cheap, and sell when they are expensive. However, that’s not so easy at the best of times. In the middle of a one-in-100-year pandemic it’s almost impossible.
When it comes down to it, determining how much risk you can live with and then buying investments that suit your tolerance for risk – when you have the cash available, is a more certain strategy than holding out until you believe the ‘right’ time to invest has arrived.
Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.