InvestSMART

"What are you doing about..."

We stay the course knowing full well events will happen. The best way to deal with market downturns is not to predict them. Heaven knows a few months ago we would have never predicted a virus from China would cause a correction.

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28 Feb 2020 · 2 min read

Since Tuesday we have been asked “what are we doing...?” This is in relation to the market downturn due to the coronavirus, however, you could replace this with any macroeconomic event. The same question is asked when we have US elections, Brexit, natural disasters, property market slowdowns or franking credits election fears.

You name it, the question is the same – “What are you doing about <insert current event>?” The thing is, on average since 1900, the US stock market for example, experiences a correction once a year, that is a fall of 10% or more. What this should tell you is that market falls are just part and parcel of the investment cycle.

Which is why our answer is always the same – stay the course. We do not swerve at macroeconomic potholes. We stick with the strategy that has seen all our InvestSMART Capped Fee Portfolios outperform their peer group.

We stay the course knowing full well these events will happen. The best way to deal with these is not to predict them. Heaven knows a few months ago we would have never predicted a virus from China would cause a correction.

What we can predict is these events will continue to happen. What we will continue to do is operate diversified portfolios, spread across multiple asset classes, ready to ride out these shorter-term issues.

If we did try to predict movements, two things would happen:

  1. Most of the time we would get the predictions wrong, leaving returns on the table (even the very best do) and;
  2. Cost our clients transaction fees and lock in tax events.

Should you be worried about the financial impacts of coronavirus and other unknowns? The answer is yes, if you are inadequately diversified in line with your investment timeframe.

If your investment goal is short-term and your portfolio is 100% exposed to growth assets like Australian shares and international shares, your diversification is out of line with your investment timeframe. You could get lucky and avoid a downturn in markets, but if one does hit, you will be set back and risk not reaching that goal. The same goes for those retired and living off their portfolio. If you’re not adequately diversified, you could be taking on board excessive risk.

Here’s four things you can do:

  1. Use the InvestSMART goal calculators to check if you’re using the risk profile in line with your goal’s timeframe.

  2. Check the diversification of your existing portfolio using the InvestSMART Portfolio Manager. This is a free tool and you can select a risk profile and see how your portfolio measures up.

  3. Get adequately diversified with our capped fee portfolios.

  4. If your portfolio is healthy, sit tight and don’t waste money on unnecessary brokerage charges.

 

Upcoming Events in your capital city

It can be difficult to know what to do in times of volatility, therefore join our Editor-in-Chief Alan Kohler, CEO Ron Hodge and income strategist Elizabeth Moran as they go on tour in your capital city. 


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