15 July, 2020 / IN Wealth management / by Kurt Purkiss
COVID-19 is the creator of many unknowns. Even now, we are still unsure of the full impact it will have on the economy and by extension our investment portfolios. Governments have been forced into unorthodox tactics to save lives and to keep the economy afloat. Markets have experienced strong fluctuations and the volatility looks set to continue.
Successfully navigating the peaks and troughs of the investment market is complex and extremely difficult to execute correctly. Professional investors with billions of dollars in capital and access to the best technology and research don’t always get the timing of market shifts right, sometimes they get it completely wrong.
The fact is no-one has a crystal ball. No one expected Covid-19 to hit like it did. Or the stock market to react the way it has. Trying to time the ups and downs of the market inevitably involves making guesses. But for those of us relying on our investment portfolios to secure the future of our families and our retirement, it’s not the kind of risk we want to take.
This is why it’s better to think about time in the market
Shares and associated investments such as exchange traded funds tend to grow in value in the long-term. In 2019, the Reserve Bank estimated that the average annual return of Australian shares has been in the vicinity of 10% per annum over the last 100 years (6% after inflation). That’s before compounding factors such as dividend reinvestment are taken into account. And remember that this timespan includes the Great Depression and the recession we had to have in 1987.
The longer you are in the market, the more benefit you are likely to get from this upward trend. That’s why it makes sense to invest gradually and consistently. Still, it’s vital to get the right balance of investments to maximise returns and minimise risk. Making your superannuation and savings work harder for you demands quality well-researched and diversified investments that factor in the time you are likely to spend in the market (i.e. when you want to retire or plan to use your savings to buy property) as well as your appetite for risk.
A well thought-out and implemented financial plan helps
A financial plan keeps us focused on our long-term financial goals and to not get too distracted by the volatility of the present. Of course, the economic consequences of COVID-19 mean some of us will have to adapt to changing financial circumstances. The right financial planner will help you find the best way to do this without losing sight of the long view.
A qualified financial planner with a good track record is also well-placed to adjust your portfolio so it can adapt to your changing circumstances. Life is full of risks, and the people who prosper best are often those who know how to seek out the best advice when their situation changes.
If you would like to talk to someone about making or adapting your financial plan, call Kurt Purkiss on 02 4969 6600 and we can arrange a complimentary initial discussion.