Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 374

Four simple things to do right now

This is a challenging time for investors. While stock markets have recovered from their late March 2020 lows, there are signs the impact of COVID-19 and nervousness about the US election are worrying markets. The S&P/ASX200 index has fallen in each of the last four weeks. The tech stocks that have run the hardest and supported the broader index have spluttered with a 10% correction in the NASDAQ in the last two weeks. The market is facing the reality that a vaccine is unlikely in 2020.

Here are four things to help in navigating the sea of news.

#1. Take responsibility

How we respond to coronavirus matters.

It’s not what other people do in times like this that create problems; it’s what we do. There are no ‘other people’. It’s true for our investments, and it’s also true for our mental health right now.

Panic is a social phenomenon, whether it’s panicked selling of investments or panicked buying of hand sanitisers. Sure, there’s an underlying trigger, but our actions and our tone have the power to either turn that trigger into a crisis or into a blip that we quickly see in the rearview mirror.

Personally, as a contrarian investor, I try to identify buying opportunities when there’s a down market. Rebalancing as a tactic also helps counter the crazy. By buying when others aren’t, we help limit the carnage, in our small way. And that helps real people avoid potentially dire situations.

As many studies at Morningstar and beyond have shown, people lock in their losses by pulling out at the bottom of a down market. It’s not the stock market decline itself that hurts them per se. It’s that they exit and then miss out on the subsequent market upswing.

That’s a serious loss for retirees living off their investments or young families planning for their first house purchase. It means cutting back, living on less, and perhaps not even being able to pay the bills.

Buying when others aren’t helps decrease the chance that people will panic and pull out, and it softens the blow if they later do. Keeping our heads and thoughtfully evaluating our investments means, ever so slightly, smoothing things out for everyone else.

Steve Wendel is Head of Behavioural Science for Morningstar.

#2. Use volatility to point you in the right direction

Use the volatility that you've seen in your portfolio as a gut check. If you feel that your portfolio value has fluctuated too much, that probably means that you're taking on too much risk.

Consider using all the attention and energy that the market turbulence has brought out in you to take the time to reconsider your risk tolerance and recalibrate your long-term asset allocation decision, or the mix between stocks, bonds and other asset classes, and ensure that it's appropriate for the level of risk that you can comfortably take on as opposed to making a short-term tactical change in your portfolio.

Ian Tam is Director of Investment Research at Morningstar.

#3. Do not try to time the market

Although it sounds easy, pulling out of the market and then waiting for a correction is something that very few people and investors can do effectively and consistently. My colleagues, Dr. Paul Kaplan and Dr. Maciej Kowara have authored a few papers around this topic. For one, they ran a study of about 304 Canadian equity funds over a 15-year period ending October of 2018 and found that on average, there were only eight critical months of performance that a fund's history depended on to beat its own benchmark. Of course, if you weren't invested during those critical months, you too would have failed to beat the benchmark.

So, investing early and staying invested over the long term is really the only way to ensure that you catch these critical months. The path to financial freedom is a marathon and not a race.

Ian Tam is Director of Investment Research at Morningstar.

#4. Use time to your advantage

The airwaves are saturated with coronavirus coverage. Buy, sell, hold, don’t panic, panic, get supplies, wash your hands. What should you do?

Only time will tell what the best moves were and when, but one thing that we strongly encourage at Morningstar is that you use time to your advantage. That means first avoiding ‘un-doing’ the power of time in your portfolio by panicking. Quality investments have seen dramatic drops in value in the past, and they’ve recovered. And depending on your retirement goals, that may mean that the red you see today could be a flashing buy sign for certain stocks in the long game. You won’t know when markets hit the bottom, and you won’t know when a bump is a bull trap.

Go with what you know. The rules you set for yourself and the power of compounding and diversification remain constants amidst the chaos. Pair this with reliable sources of information and you’ll find less of a reason to panic about your portfolio when it comes to this pandemic. Save your energy to focus on what matters most: the health of you and your family, friends and neighbours.

By Andrew Willis is Content Editor at Morningstar.

This article is general information and does not consider the circumstances of any investor.


Try Morningstar Premium for free


 

RELATED ARTICLES

How do your financial priorities stack up with our pyramid?

Choosing your investment strategy is like a road journey

Four checks for a financial fire drill

banner

Most viewed in recent weeks

Vale Graham Hand

It’s with heavy hearts that we announce Firstlinks’ co-founder and former Managing Editor, Graham Hand, has died aged 66. Graham was a legendary figure in the finance industry and here are three tributes to him.

Warren Buffett is preparing for a bear market. Should you?

Berkshire Hathaway’s third quarter earnings update reveals Buffett is selling stocks and building record cash reserves. Here’s a look at his track record in calling market tops and whether you should follow his lead and dial down risk.

Welcome to Firstlinks Edition 583 with weekend update

Investing guru Howard Marks says he had two epiphanies while visiting Australia recently: the two major asset classes aren’t what you think they are, and one key decision matters above all else when building portfolios.

  • 24 October 2024

A big win for bank customers against scammers

A recent ruling from The Australian Financial Complaints Authority may herald a new era for financial scams. For the first time, a bank is being forced to reimburse a customer for the amount they were scammed.

The gentle art of death cleaning

Most of us don't want to think about death. But there is a compelling reason why we do need to plan ahead, and that's because leaving our loved ones with a mess - financial or otherwise - is not how we want them to remember us.

Why has nothing worked to fix Australia's housing mess?

Why has a succession of inquiries and reports, along with a plethora of academic papers, not led to effective action to improve housing affordability? Because the work has been aimless and unsupported by a national consensus.

Latest Updates

90% of housing is unaffordable for average Australians

A new report shows that only 10% of the housing market is genuinely affordable for the median income family, and that drops to 0% for those on low incomes. This may be positive for the apartment market though.

Taxpayers betrayed by Future Fund debacle

The Future Fund's original purpose was to meet the unfunded liabilities of Commonwealth defined benefit schemes. These liabilities have ballooned to an estimated $290 billion and taxpayers continue to be treated like fools.

Property

The net benefit of living in Australia’s cities has fallen dramatically

Rising urban housing costs in Australia are outpacing wage growth, particularly in cities like Sydney and Melbourne. This is leading to an exodus of workers, especially in their 30s, from cities to regions. 

Shares

Fending off short sellers and gaining conviction in a stock

Taking the path less travelled led to a remarkable return from this small-cap. Here is the inside track on how our investment unfolded, and why we don't think the story has finished yet.

Planning

The nuts and bolts of testamentary trusts

Unlike family trusts, testamentary trusts are activated posthumously, empowering you to exert post-death control over your assets. Learn how testamentary trusts offer unique benefits and protective measures.

Investing

The US market outlook is more nuanced than it seems

Investors are getting back to business after a tumultuous election year. Weighing up the fundamentals is complicated, however, by policy crosscurrents that splinter the outlook in several industries.

Investing

Book and podcast recommendations for the summer

Dive into these recommendations for your summer reading and listening. Uncover the genius behind a secretive hedge fund, debunk healthcare myths, and explore the Cuban Missile Crisis in gripping detail.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.