It has been an interesting couple of weeks on the share market again. Headlines such as ‘Bloodbath on the share market’ or ‘Billions wiped off the ASX’ don’t do investors any favours. If anything, they create anxiety and stress where it is not warranted.
Yes, share market losses affect nearly everyone, by virtue of being invested in superannuation funds. However, most people would not be nearly as badly affected as the media make out.
So what can you do to ensure you don’t get caught up in the turmoil?
1. Diversify, diversify, diversify
Never have all your eggs in one basket. This includes having exposure to other countries and currencies than Australia.
For example: – International markets had been doing quite well over the last few years, whereas the Australian market has not had such a stellar performance.
– Likewise, the fall in the Australian dollar would have paid serious dividends if you had overseas shares where the foreign currency was not hedged (a drop in the AUD means overseas assets become more valuable).
– At present, banks and miners are being hit hard, which severely affects the Australian share market as a whole, due to the concentrated nature of our market.
– Australia only makes up 2-3% of the world’s share market capitalisation, so it would be foolish to ignore other economies and industries.
Other than diversifying at a share market level, including other assets such as property, cash and fixed interest in your portfolio will also typically reduce the wild swings your portfolio may experience. So-called defensive assets such as cash and fixed interest can help smooth out volatility and share losses.
Most people would be invested in such a diversified portfolio in their super fund.
2. Stay calm
Don’t make any irrational decisions, such as selling all your shares. Usually, by the time people capitulate and sell out, the worst of the market downturn has already passed. All you would be doing then is cementing your losses, without any prospect of clawing back the losses when the share market rebounds.
No one can time when the market has peaked or bottomed. Instead you should review at least once a year whether your investments are still in line with your goals, timeframe and risk profile. This includes rebalancing your mix of investments and taking profits when the share market has done well, so you don’t become over-exposed.
3. Bunker down
If you already have retired, then it is critical to preserve as much of your capital as possible. You may need to reduce or defer expenses and try to avoid selling down investments.
If you are within a few years of retirement, then now might be the time to start accumulating a cash reserve, so that you can limit how much you need to draw from your investments in a few years time, and give your portfolio the chance to recover.
If you are many years way from retirement, then this current share market rout might present an opportunity, where you buy quality shares at lower prices. This will happen by way of your regular super contributions being invested.
Whatever your circumstances, the worst thing you could do right now is panic or make irrational decisions. Seek professional help from a qualified financial adviser who can assist with navigating you through the current turmoil and steer you towards the achievement of your retirement goals.
If you are worried or stressed about your financial future and the current share market conditions, please call me on 08 9381 2704 for a free initial consultation.
Disclaimer: Yves Schoof and Affluence Private Wealth are Authorised Representatives of Synchron, AFS Licence No. 243313.
The information posted is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making a decision.