Paul's Insights: Has the investment world changed forever?
As we sit at the start of 2019, it can seem that there’s plenty to worry about. We’re seeing headlines about falling property values, sharemarket jitters, and a whole host of other issues from Brexit to our upcoming federal election.
So how do we, as investors, handle the current spate of market volatility and media hype?
The answer lies in understanding that the world has always been incredibly volatile.
History is peppered with natural disasters, multiple wars, any number of great depressions, and at any given time there have always been nations at loggerheads.
The fact is, things have always gone up and down. What’s different today is that television, radio and the internet tell us about every crisis, virtually as it happens.
The world is not actually a bad place. Yes, I know there are troublesome issues with the Trump administration, and we face serious concerns over global warming. But something’s always been in trouble on this planet we live on.
That’s why it’s so important to approach investing with commonsense.
There’s a lot to be positive about. The world population is growing. More people are in the middle classes – hundreds of millions of people. They’re all spending, and living longer. That’s good for companies that supply products and services, which in the long run is good for share prices. A growing population is also good for property values.
The trick is not to become overly paranoid about too much information and think that everything is different these days. Everything is not different. Retain your composure and keep investing for the long term through a diverse mix of investments.
Different asset classes move in different directions at various times. No one can exactly predict when markets will hit a high or a low. But with a blend of investments, you won’t feel the full impact when one market falls. When markets are underperforming, use this as an opportunity to top up your portfolio.
It pays to diversify across countries as well as asset classes. We tend to have a bias towards investing within Australia. However, Australia represents a tiny fraction of the global economy, and you can take advantage of a world of opportunities not available on our own shores by investing through a managed fund.
One of the great innovations of our time is the availability of extremely low cost managed funds that allow investors to build a diversified portfolio of assets with exposure to local and international markets. You get the benefit of automatic portfolio rebalancing and transparency of the underlying investments. It’s an easy and inexpensive way to invest without concerns about whether now is the ‘right time’ to head into any particular market.
Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.