financial planning & lending specialists 03 9686 4976

PDF VERSION HERE >>

  • We’ve recently seen growth investments (like shares) drop as a result of the current COVID-influenced economic downturn. This has prompted some investors to question their shareholdings, such as would they be better off just holding cash? 

  • We believe that the best approach in planning your retirement savings is to recognise that your investments are ‘long term’ and designed to be held over the course of many years, not months. Ultimately, your investment horizon will be determined by whether you are either saving for retirement, or are already in retirement and need to draw down on income in the years ahead of you.

Allow me to explain...

  • People who stay invested over a longer-term timeframe (regardless of whether they are already years into retirement or have many years until retirement), will almost invariably iron out negative return periods like we are presently experiencing. Even the damage to domestic share returns that was caused by the GFC – a once-in-a-century financial crisis – was rectified within seven years after taking account of dividends. Global shares recovered in even less time.
  • If you sell down to cash and try to time when to get back in, you almost inevitably miss out on the recovery. Timing market moves is difficult even for the world’s savviest investors. As the famous saying goes, “it’s not about timing the market, but time in the market.” We say more about this below, but want you to note that markets generally move higher over the longer term (see the chart with dark blue and red bars).
  • Staying the course should see your long term returns easily outweigh the intermittent negative episodes. By sticking to your investment strategy, you can still make tweaks to ensure you are not exposed to failing investments, while retaining ones that are temporarily devalued. In other words, don’t throw the baby out with the bath water!

But why not try and time short-term market moves? 

The temptation to do this is immense. With the benefit of hindsight many swings in markets like the tech boom and bust, the GFC and, perhaps the current COVID crisis, to some might look as though these events were reasonably “predictable”.  So perhaps it’s natural to think “why not give it a go?” by switching between say cash and shares within your super to anticipate market moves. As the yellow and blue chart shows, if you get it right you accelerate your returns (yellow bars), but if you get it wrong (blue bars) you will be left sorely disappointed. 

 Now if there is one thing that history has taught us, it’s that we have learned nothing from history. During the GFC many investors believed the bottom was going to be in October 2008 and there was a strong rally shortly afterward. But it proved to be short-lived and markets actually bottomed in March 2009. Just prior to this final leg down, many investors who had mistimed their re-entry were suffering from utter despair and were convinced markets still had much further to fall. They sold at exactly the wrong time. Indeed, even those investors who bought in at or near the bottom and enjoyed some of the rally couldn’t hold their nerve and many sold well below the top.

 In each case investors who were in it for the long term usually fared better than most who tried to time their entry and exit points…and re-entry…and so on and so forth. Of course, there are always instances of those who get the timing component right – but those are few and far between and often cannot repeat their efforts. Yes, sometimes dumb luck pays off. But we try to leave nothing to chance and have tried to position our clients portfolios for long term growth. 

Summary

  • While shares/property/infrastructure go through more periods of negative returns compared to bonds and cash, over the long term they provide higher and stronger returns in both capital growth and income yield. Therefore, it is logical that your portfolio has an exposure to them.


  • Switching to cash after a market has fallen is not the best strategy for either preserving your capital or aiding longer term growth. You will almost invariably mis-time when to re-enter your investment strategy thereby increasing the likelihood of missing out on returns. And remember that your Strategic Plan relies on a certain level of return for you to attain your retirement objectives.


  • If you look at your account balance and feel anxious or disappointed, do not let this emotional state drive your decision making. It is difficult to make sound decisions based on an emotional reaction, as opposed to the logical decisions based on your Strategic Plan. In the case of the latter, you will be calmer and more likely to remember the longer term fundamentals of your Plan and Investment strategy.

As always, if you have any questions, please do not hesitate to reach out. 

What happens at settlement?

Settlement is the final process in the exchange between buyer and seller before picking up the keys!

READ MORE >

Things just got interesting...

Yesterday the Reserve Bank dropped interest rates by 0.25% to a record low 1.75%, but what's next? James Taylor gives us his view here...

READ MORE >

The mortgage broking process…

So you’re interested in getting on the property ladder – but what steps should you take next?

READ MORE >

Our view on the Investment Landscape - April 2015

It’s been a big 12 months for Australian economics, the Government and the Reserve Bank of Australia (RBA). Australian growth forecasts are continually being revised downwards, and this looks like it will continue as things are not improving.

READ MORE >

RBA Sits On The Sidelines While Lenders Play On

At its May meeting, the Reserve Bank of Australia elected to keep the official cash rate on hold at 1.5 per cent. However, Australian lenders are still increasing rates to keep in line with APRA's new lending rules...

READ MORE >

Tale Of Two Budgets - In less than 2 minutes

With the Federal Election due to be called any day now, Hamish & Wilson delve into the highlights from both side's budget proposals.

READ MORE >

Insurance Claims & The Media - What you need to know

Unpaid insurance claims have been big news recently, highlighting why it's so important to have your personal policies reviewed by a licenced adviser regularly...

READ MORE >

A Quick Overview Of The Current Investment Landscape

What's actually happening out there? As we near the end of the first quarter of 2016 (yes already!) James Taylor shares his professional overview of the current economic conditions.

READ MORE >

Investment Lending Is Changing

Big things are happening in lending world. If you have an investment property or an interest only home loan - this may impact you

READ MORE >

The Conveyancing Guide - Part Two

Read on to find out the key differences in the level of training, experienceand what each can offer you throughout the conveyancing process. ..

READ MORE >

How To Prepare For A Property Sale

Should You Renovate Before Selling? When's the Best Time Of Year To Sell? What Should You Look For In An Agent? Auction or Private Sale? Director of Marshall White Brighton, Kate Strickland gives her expert opinions.

READ MORE >

New Road Wear Launch!

This spring we want to inspire you to keep pedalling! Find out how you can get our new high tech kit, worth over $700, for free...

READ MORE >