Ride the market to recovery
Severe market downturns feel anything but fair. In many ways the biggest risk facing investors now is the impulse to take action and to make hasty, short-term decisions based on emotional factors rather than accepting where we are today and riding things out.
The loss of market value that seemingly evaporates overnight is deeply unsettling and challenging even for committed, well-diversified long-term investors.
But market downturns are not unexpected – most of us will experience several during our lifetimes – particularly after such a long bull market run where market surprises were generally on the upside.
Australia we also should remember has not felt a recession in 29 years. That may feel like cold comfort at this time particularly because we are first and foremost dealing with a global health crisis that unravelled extremely quickly, and then the economic impacts that flows from the measures required to contain and combat it.
Uncertainty and the sense of loss of control are powerful emotions to grapple with. But what we know from past market events is that patience will be rewarded and recoveries can be just as sudden and strong.
The positive news is that the general consensus among economists is that while the recession will likely be sharp it is also likely to be relatively short and the upswing quite rapid. It has also been encouraging to see governments around the world prescribing measures to help hasten the recovery.
But the question about what to do – now – remains. At Vanguard we feel there are probably five things investors should think about:
- Tune out the noise. We all want to be informed but with dedicated television channels, websites and newsletters all on top of our normal media consumption habits this type of news event can be overwhelming. Consider checking in with one or two trusted sources and tune out the rest. It's ok not to be checking account balances when markets are falling.
- Revisit your asset allocation. These type of market events impact investors differently. But it is not all doom and gloom. Younger investors have that incredibly valuable asset – time – while those approaching retirement have just been given a sharp example of how much risk is in their portfolio. If it has surprised you then going forward as markets recover it may mean you should re-evaluate your risk tolerance and rebalance your portfolio to take a more conservative approach.
- We know we cannot control markets but there are some things we can control – like costs. Costs are particularly painful during downturns so take the time to review high cost investments in your portfolio. For those already in retirement it may mean temporarily trimming back on discretionary lifestyle spending to lighten the amount you need to draw down.
- Stay diversified. Different asset classes and sector exposures can help insulate your portfolio by spreading the risk.
- Set realistic expectations. Have a long-term plan and be realistic about returns you expect in the decades ahead.
Staying the course can pay off, abandoning course can be costly.
Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
31 March 2020
vanguardinvestments.com.au
Latest Newsletters
Hot Issues
- Aged care report goes to the heart of Australia’s tax debate
- Removed super no longer protected from creditors: court
- ATO investigating 16.5k SMSFs over valuation compliance
- The 2025 Financial Year Tax & Super Changes You Need to Know!
- Investment and economic outlook, March 2024
- The compounding benefits from reinvesting dividends
- Three things to consider when switching your super
- Oldest Buildings in the World.
- Illegal access nets $637 million
- Trustee decisions are at their own discretion: expert
- Regular reviews and safekeeping of documents vital: expert
- Latest stats back up research into SMSF longevity and returns: educator
- Investment and economic outlook, February 2024
- Planning financially for a career break
- Could your SMSF do with more diversification?
- Countries producing the most solar power by gigawatt hours
- Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’
- Quarterly reporting regime means communication now paramount: expert
- Plan now to take advantage of 5-year carry forward rule: expert
- Why investors are firmly focused on interest rates
- Super literacy low for cash-strapped
- Four timeless principles for investing success
- Investment and economic outlook, January 2024
- Wheat Production by Country
- Time to start planning for stage 3 tax cuts: technical manager
- Millions of Australians lose by leaving savings in default MySuper funds
- Vanguard economic and market outlook for 2024: A return to sound money
- An investment year of ups and downs
Article archive
- January - March 2024
- October - December 2023
- July - September 2023
- April - June 2023
- January - March 2023
- October - December 2022
- July - September 2022
- April - June 2022
- January - March 2022
- October - December 2021
- July - September 2021
- April - June 2021
- January - March 2021
- October - December 2020
- July - September 2020
- April - June 2020
- January - March 2020
- October - December 2019
- July - September 2019
- April - June 2019
- January - March 2019
- October - December 2018
- July - September 2018
- April - June 2018
- January - March 2018
- October - December 2017
- July - September 2017
- April - June 2017
- January - March 2017
- October - December 2016
- July - September 2016
- April - June 2016
- January - March 2016
- October - December 2015
- July - September 2015
- April - June 2015
April - June 2020 archive
- ‘HomeBuilder’ grants now available.
- Related-party property development concerns — Part 1
- The value of financial advice
- A super catch-up plan
- Court decides on taxable capital gains distributions
- SMSF liquidity lessons learnt from the pandemic
- Do your investment goals stack up?
- Retirement income framework deferred due to COVID-19
- How early super withdrawals add up
- AFP teams up with ATO, Treasury in COVID-19 tax fraud taskforce
- ATO extends initial JobKeeper payment deadline
- ATO releases JobKeeper alternative test
- Our Website, your resources
- Consumer satisfaction up for SMSFs, down for industry funds
- Superannuation for younger investors
- How to stay the course in retirement
- COVID-19: Early Childhood Education and Care Relief Package
- Government announces mandatory code for rent relief
- ATO clarifies COVID-19 rent relief concerns
- SMSFs in the ATO firing line
- Avoid SISR traps in early access to super scheme
- Data so large it's hard to comprehend.
- Ride the market to recovery
- Historic $130bn wage subsidy to cover 6 million workers
- Stage 2 – Covid-19 stimulus package.