Guide to investing when share markets are volatile from a Sydney Financial Advisor
What should people do who are thinking about retiring over the next 6-12 months?
* The first thing I'd say is do not panic. This isn't the first time sharemarkets have fallen and it won't be the last. In fact, since 1927, there has been 31 times where share markets in America have fallen by more than they did last night (6.66%).
* The worst was during the 1987 share market crash where US stocks fell by 20.47% in one day (19/10/1987).
* The key to investing is to buy low and sell high. Although we don't know how much further share markets will fall, I think we have to take a positive view on the world and believe that things will eventually get better and markets will recover as they have every time in the past.
* When share markets have fallen, they have always subsequently recovered and increased in value beyond the previous decline.
* Over the past 30 years, on average, when markets fall, they have fallen by an average of 20% and subsequently risen by an average of 50%.
Will people need to re-assess their current plans (speak with Financial Planner)?
* I think that everybody should review how their money is invested. If people are uncomfortable with how much money they have exposed to share markets, they should discuss with their financial advisor the best way to reduce that exposure and when would be the appropriate time to do so.
* One of the important rules of investing is the "sleep at night" rule. If your investments are keeping you up at night. It probably isn't the right strategy for you.
* Going forward, people might like to think about how much risk they are prepared to take in their overall investment mix and what stage of life they are at. I'm just generalizing but someone approaching retirement would probably prefer to earn a lower, but stable return from cash and someone younger with 10 years + to retirement might be happy to target a higher return from shares and accept the ups and downs.
* If people didn't review their investment strategy in 2008, after this weeks share market turbulence, now may be the time to have a think about it.
What should People nearing retirement do?
* If people are thinking about retiring about the next 6-12 months, I'd hate to see people defer retirement plans due to circumstances outside of their control.
* I would look at ways people can minimize the effect of falling sharemarkets on their investments and still try to work towards their current retirement goals.
* For example – For people who are retired, if they have a mix of cash and shares in their super, I would look at quarantining the share portion of their super and drawdown on the cash portion to meet expenses and allow the shares to recover over time.
* The majority of Australians have superannuation which is invested in shares so we are all in the same boat.
Should people hold off making any changes?
* If people are nervous and thinking about selling I would suggest that selling while markets are falling is probably not the best time to sell. Unfortunately the best time to sell was several months ago and we're now at the stage where the best course of action may to be to simply ride it out.
* Waiting for a rally to sell is better than selling at the bottom.
What actions should they take with investments?
* My general view is that it is a great time to buy. You have to ask yourself, what has changed with great Australian companies like CBA or BHP since last Thursday? To me, they are the same great blue chip companies.
* Sharemarkets tend to overact and are driven on sentiment. They are either extremely optimistic or pessimistic and overshoot the mark both sides. At the moment pessimism rules.
* If you believe that share markets have been oversold and present good value on a valuations basis, now may be the perfect time to buy quality shares at a significant discount to last week's prices.
BHP under $37
ANZ under $19
WOW under $25
ASX closed up 49 points
* There have been a number of significant short term sell offs in share markets over the past 30 years which have usually been triggered by a single event. The trigger event this week has been the recent downgrade of US government debt by standards and poors.
The Australian market is currently very attractively valued at about 10 to 11 times earnings, compared to historic valuations of 14 to 15 times earnings
"It is hard to see the Australian market" trading at 10 to 11 times in the next year, Taylor says.
Fears of a global recession and a financial system crises in Europe are driving markets lower.
* The first thing I'd say is do not panic. This isn't the first time sharemarkets have fallen and it won't be the last. In fact, since 1927, there has been 31 times where share markets in America have fallen by more than they did last night (6.66%).
* The worst was during the 1987 share market crash where US stocks fell by 20.47% in one day (19/10/1987).
* The key to investing is to buy low and sell high. Although we don't know how much further share markets will fall, I think we have to take a positive view on the world and believe that things will eventually get better and markets will recover as they have every time in the past.
* When share markets have fallen, they have always subsequently recovered and increased in value beyond the previous decline.
* Over the past 30 years, on average, when markets fall, they have fallen by an average of 20% and subsequently risen by an average of 50%.
Will people need to re-assess their current plans (speak with Financial Planner)?
* I think that everybody should review how their money is invested. If people are uncomfortable with how much money they have exposed to share markets, they should discuss with their financial advisor the best way to reduce that exposure and when would be the appropriate time to do so.
* One of the important rules of investing is the "sleep at night" rule. If your investments are keeping you up at night. It probably isn't the right strategy for you.
* Going forward, people might like to think about how much risk they are prepared to take in their overall investment mix and what stage of life they are at. I'm just generalizing but someone approaching retirement would probably prefer to earn a lower, but stable return from cash and someone younger with 10 years + to retirement might be happy to target a higher return from shares and accept the ups and downs.
* If people didn't review their investment strategy in 2008, after this weeks share market turbulence, now may be the time to have a think about it.
What should People nearing retirement do?
* If people are thinking about retiring about the next 6-12 months, I'd hate to see people defer retirement plans due to circumstances outside of their control.
* I would look at ways people can minimize the effect of falling sharemarkets on their investments and still try to work towards their current retirement goals.
* For example – For people who are retired, if they have a mix of cash and shares in their super, I would look at quarantining the share portion of their super and drawdown on the cash portion to meet expenses and allow the shares to recover over time.
* The majority of Australians have superannuation which is invested in shares so we are all in the same boat.
Should people hold off making any changes?
* If people are nervous and thinking about selling I would suggest that selling while markets are falling is probably not the best time to sell. Unfortunately the best time to sell was several months ago and we're now at the stage where the best course of action may to be to simply ride it out.
* Waiting for a rally to sell is better than selling at the bottom.
What actions should they take with investments?
* My general view is that it is a great time to buy. You have to ask yourself, what has changed with great Australian companies like CBA or BHP since last Thursday? To me, they are the same great blue chip companies.
* Sharemarkets tend to overact and are driven on sentiment. They are either extremely optimistic or pessimistic and overshoot the mark both sides. At the moment pessimism rules.
* If you believe that share markets have been oversold and present good value on a valuations basis, now may be the perfect time to buy quality shares at a significant discount to last week's prices.
BHP under $37
ANZ under $19
WOW under $25
ASX closed up 49 points
* There have been a number of significant short term sell offs in share markets over the past 30 years which have usually been triggered by a single event. The trigger event this week has been the recent downgrade of US government debt by standards and poors.
The Australian market is currently very attractively valued at about 10 to 11 times earnings, compared to historic valuations of 14 to 15 times earnings
"It is hard to see the Australian market" trading at 10 to 11 times in the next year, Taylor says.
Fears of a global recession and a financial system crises in Europe are driving markets lower.
Source...