Back to basics for investors as volatility lingers


MEDIA RELEASE: Australian investors should use this period of volatility in equity markets to ensure their portfolios reflect their financial goals, according to HLB Mann Judd Sydney wealth management partner, Jonathan Philpot.

Mr Philpot said investors are too preoccupied with daily market movements and can lose sight of the bigger investing picture.

“Investors need look at the composition and weighting of their portfolio, and whether it can achieve their goals over a period of time.

“A home deposit, for example, might be a three-year investment plan, so the portfolio needs to be reasonably conservative. If the goal however has a five to ten-year horizon, the portfolio would require a more balanced approach, such as having at least 50 per cent in shares and 50 per cent in secure investments.

“Beyond that timeframe, a more aggressive investment strategy can be utilised; at least 70 per cent in shares would be an appropriate balance as there’s more time to recover from any corrections in the market,” he said.

Mr Philpot made the comments following yesterday’s five per cent fall in the Australian sharemarket, with $90 billion wiped off the market by the end of the day’s trade – the sharpest decline since the COVID crash.

Mr Philpot said investors should review the historical performance of each investment asset class over time in better understanding the impact of volatility. He believes this can provide a degree of comfort to younger or less experienced investors who haven’t lived through the natural fluctuations of market cycles.

“Experienced investors accept volatility and recognise it’s the price you pay for higher returns. Clients that went through the global financial crisis of 2008/09 dealt with the pandemic volatility well, whereas less experienced investors struggled with the extreme movements.

“There’s a lot of historical data available on shares, property and bond market returns over time. The S&P500 Index, for example, had 84 periods of decline between 1946 and 2022 of between five and ten per cent, which is more than one a year; however, on average, it only took one month to recover the loss. In addition, ten to 20 per cent declines occurred 29 times – or nearly once every two years – but again, it only took an average of four months to recover.

Other tips for investors in mitigating the impact of volatility include having a written investment strategy which includes asset allocation ranges with minimum and maximum levels. Mr Philpot said investors without a documented strategy are more likely to panic and revert to cash when a major market correction occurs.

“Interestingly, they then tend not to go back to the original investment allocation until markets have rebounded 20 per cent, locking in losses or destroying any capital.

“Also, selling shares because of volatility isn’t a sound investment strategy and is instead a means of losing money. There are plenty of reasons to sell a share but volatility and market falls of ten per cent isn’t one of them. You will miss the best trading days which tend to happen right after the big falls,” he said.

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