While the uncertainty surrounding the spread of the coronavirus is very unsettling on a human level, as fears heighten that the spread of the virus will worsen, the impact on both global and domestic financial markets is also becoming increasingly unsettling.
After an extended period of above-average returns, 2020 has been much more difficult due to the coronavirus outbreak, with February and March being particularly volatile, impacting investment balances, before markets rebounded over the next four months.
Market declines can occur when investors are forced to reassess expectations for the future and this is now happening as investors consider the impact on governments, companies and households as restrictions are put in place as all efforts are made to stop the spread of the virus.
At Hales Douglass Financial Services, we understand and have been educating clients for some time, that investment markets are cyclical in nature and will never just continue to rise indefinitely. Market cycles are characterised by several good years of returns followed by generally a year or two of negative returns. While the trigger of a downturn is not always predicted, it is a normal and anticipated outcome of investing in growth investments.
You should not be surprised to receive statements with negative returns for short periods of time. It is the one thing that we guarantee will occur from time to time as a result of having exposure to growth based investments.
How have we positioned our clients’ portfolios?
In times such as these, we believe the best course of action is to have your funds positioned in a diversified portfolio of quality long term investments.
For our clients in pension phase, your portfolio is constructed to include a sufficient allocation to more defensive investments such as cash and fixed interest to draw on during a downturn. Our advice is to remain patient with the growth assets in your portfolio in order to benefit from solid long term returns.
We have been positioning portfolios more defensively through the process of taking profits from the investments that have performed well (i.e. Australian and International shares) and topping up cash levels in preparation for the next inevitable downturn. We will never say we can time when markets will become negative, but we do know the cyclical nature of growth based investments.
For our clients still accumulating, superannuation is a long term investment and market downturns can be opportunities to purchase assets at depressed prices via superannuation guarantee or personal contributions.
Our investment philosophy takes considerable care to ensure our clients are invested in well-diversified portfolios of high-quality, long term investments.
This does not mean, however, that your funds will be insulated completely from what is going on in global investment markets. Unfortunately, you can be invested in good quality investments, but their value will still decline as negative sentiment over the short term impacts of the spread of the coronavirus causes all markets to fall.
Investments are for the long term
Investments should be based with a long term view. Market volatility and negative investment markets are a normal and anticipated part of the investment cycle over the short term. Our clients’ portfolios have been constructed with a long term view and to weather events such as those we are currently experiencing.