Ride the market to recovery

Severe market downturns feel anything but fair. In many ways the biggest risk facing investors now is the impulse to take action and to make hasty, short-term decisions based on emotional factors rather than accepting where we are today and riding things out.

       

The loss of market value that seemingly evaporates overnight is deeply unsettling and challenging even for committed, well-diversified long-term investors.

But market downturns are not unexpected – most of us will experience several during our lifetimes – particularly after such a long bull market run where market surprises were generally on the upside.

Australia we also should remember has not felt a recession in 29 years. That may feel like cold comfort at this time particularly because we are first and foremost dealing with a global health crisis that unravelled extremely quickly, and then the economic impacts that flows from the measures required to contain and combat it.

Uncertainty and the sense of loss of control are powerful emotions to grapple with. But what we know from past market events is that patience will be rewarded and recoveries can be just as sudden and strong.

The positive news is that the general consensus among economists is that while the recession will likely be sharp it is also likely to be relatively short and the upswing quite rapid. It has also been encouraging to see governments around the world prescribing measures to help hasten the recovery.

But the question about what to do – now – remains. At Vanguard we feel there are probably five things investors should think about:

  1. Tune out the noise. We all want to be informed but with dedicated television channels, websites and newsletters all on top of our normal media consumption habits this type of news event can be overwhelming. Consider checking in with one or two trusted sources and tune out the rest. It's ok not to be checking account balances when markets are falling.
     
  2. Revisit your asset allocation. These type of market events impact investors differently. But it is not all doom and gloom. Younger investors have that incredibly valuable asset – time – while those approaching retirement have just been given a sharp example of how much risk is in their portfolio. If it has surprised you then going forward as markets recover it may mean you should re-evaluate your risk tolerance and rebalance your portfolio to take a more conservative approach.
     
  3. We know we cannot control markets but there are some things we can control – like costs. Costs are particularly painful during downturns so take the time to review high cost investments in your portfolio. For those already in retirement it may mean temporarily trimming back on discretionary lifestyle spending to lighten the amount you need to draw down.
     
  4. Stay diversified. Different asset classes and sector exposures can help insulate your portfolio by spreading the risk.
     
  5. Set realistic expectations. Have a long-term plan and be realistic about returns you expect in the decades ahead.

Staying the course can pay off, abandoning course can be costly.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
31 March 2020
vanguardinvestments.com.au

 

 

More Articles

Why crypto treads an uncertain path through tax minefield

The taxation of digital assets used for lending and borrowing would benefit from clear-sighted...

Read full article

Wheat Production by Country

Check out the countries that produce the most...

Read full article

Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’

Following years of mixed messaging, Labor has bowed to economic pressure and announced changes to its stage...

Read full article

Investment and economic outlook, January 2024

Region-by-region economic outlook and latest forecasts for investment returns. . What might shipping...

Read full article

Quarterly reporting regime means communication now paramount: expert

Communication between SMSF trustees, accountants and advisers is more crucial than ever with the quarterly...

Read full article

Four timeless principles for investing success

Investing success can mean different things to different people. Being clear on what success means for you is...

Read full article

Plan now to take advantage of 5-year carry forward rule: expert

This is the last year that the five-year catch-up contribution rules for concessional contributions can be...

Read full article

Super literacy low for cash-strapped

Financial literacy around superannuation is poor for many lower-income people, who still question why they...

Read full article

Sofie Korac is an Authorised Representative (No. 400164) of Prudentia Financial Planning Pty Ltd, AFSL 544118 and a member of the Association of Financial Advisers.

Financial Advice Sydney and the North Shore Office based in Gordon NSW

Financial Services Guide - Disclaimer & Privacy Policy

^