We have seen a major correction in all equity markets around the globe, as investors react to the impact of coronavirus on company profits. Travel bans and factory closures will certainly have an impact on global economic growth and activity.
Uncertainty and fear are leading many investors to sell indiscriminately as they try to reduce their overall exposure to the equity market.
With a calm investment head, it is important to recognise that this correction is occurring at a time when many sharemarkets around the world had reached record highs. Periodic corrections in share markets of the order of 10 – 20% are normal.
At times like this it is best to “turn down the noise” as AMP’s Chief Economist Shane Oliver says. Negative news about billions wiped off share markets reaches fever pitch, however rarely are we told of the billions that the market has rebounded. Panic should not throw us off a sound long-term investment strategy.
Whilst we cannot predict when the volatility will ease, when the sharemarket does recover, good quality companies with real businesses and sustainable earnings and dividends will again be sought out by investors.
In Shane Oliver’s recent article, he succinctly considers seven things investors should keep in mind given the plunge in markets:
- corrections are normal;
- in the absence of recession, a deep bear market is unlikely;
- selling shares after a fall locks in a loss;
- share pullbacks provide opportunities for investors to buy them more cheaply;
- while shares may have fallen, dividends are often maintained;
- and finally, to avoid getting thrown off a long-term investment strategy it’s best to turn down the noise during times like this.
It is a worthwhile read. Click here to access his article.
Sound Financial Planning
Most importantly for our clients, is how we manage their portfolios in the current investment environment to achieve their long-term financial goals. The essential components of sound financial planning are; understanding clients’ investment objectives, risk tolerance and time horizon. Then, asking the most important question – is the long-term mix of assets appropriate? To discuss your individual circumstances, or any questions you have about the economic outlook, please do not hesitate to contact me on 02 9908 9888 or email firstname.lastname@example.org.
Kate is an Authorised Representative of Hillross Financial Services Limited (AR Number 1007833).