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.


Register here to receive the Firstlinks weekly newsletter for free

#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

Check eligibility for the Commonwealth Seniors Health Card

Eligibility for the Commonwealth Seniors Health Card has no asset test and a relatively high income test. It's worth checking eligibility and the benefits of qualifying to save on the cost of medications.

Start the year right with the 2022 Retiree Checklist

This is our annual checklist of what retirees need to be aware of in 2022. It is a long list of 25 items and not everything will apply to your situation. Run your eye over the benefits and entitlements.

At 98-years-old, Charlie Munger still delivers the one-liners

The Warren Buffett/Charlie Munger partnership is the stuff of legends, but even Charlie admits it is coming to an end ("I'm nearly dead"). He is one of the few people in investing prepared to say what he thinks.

Should I pay off the mortgage or top up my superannuation?

Depending on personal circumstances, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. Do the sums and ask these four questions to plan for your future.

Part 2: Hamish Douglass on not swinging for the fences

Markets don't seem normal, but Magellan is criticised for its caution. Higher interest rates to control inflation could create a recession and some of today's investing will turn out a mass delusion of modern history.

10 big investment themes to watch in 2022

Are markets on a road to recovery or a path of potholes? Leading portfolio managers were asked for the theme that most excites or worries them in the year ahead, and what they will especially watch for.

Latest Updates

Investment strategies

Despite the focus on ETFs, unlisted funds still dominate

ETFs gain the headlines as issuers are skilled at promoting their growth and new funds. Yet ETFs are tiny compared with managed funds, which advisers prefer on platforms. Which will be the long-term winner?

Latest from Morningstar

10 lessons from Larry Fink's 2022 Outlook

At a 2022 Outlook event, the influential BlackRock (largest fund manager in the world) CEO spoke about consumer behaviour and its impact on prices, the pandemic, ESG trends and likely equity returns for 2022.

Strategy

If rising inequality leads to social unrest, we all suffer

Feeling financially stressed? The entry level for the world's richest 1% is $1.5 million including the family home. If this is not enough to fund a ‘comfortable’ lifestyle, consider that 99% of people have less.

Shares

Sharemarket falls: seven things for investors to consider

Stockmarkets have fallen in recent weeks on the back of worries about inflation, monetary tightening, Omicron disruption and the risk of a Russian invasion of Ukraine. It’s too early to say markets have bottomed.

Retirement

The importance of retirement 'conditions of release'

Retirement 'conditions of release' vary by age in stages before 60, over 60 and over 65. Super tax benefits may accrue if gainful employment ceases after age 60 but a person may still return to the workforce.

Investment strategies

We need to limit retail investor harm from CFDs

A Contract for Difference (CFD) is a highly-leveraged investment used for speculative and gambling activities by retail investors without the knowledge to take such risks. ASIC is struggling to control the product.

Superannuation

It's time to assess your super fund’s carbon footprint

We face a huge economic transformation that is not a priority for politicians. Yet a typical super portfolio emits about 28 tonnes of CO2 per annum through its equities ownership, more than the average household.

Sponsors

Alliances

© 2022 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. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.