Donald has gone and done it, and sharemarkets have reacted negatively.
President Trump’s “liberation day” of global tariffs could be pure chaos without a plan. It could be he’s expecting countries to run cap in hand to cut their tariffs, Vietnam has already offered to remove all tariffs on US imports. Or he could find himself pressured by politicians in his own party and high-profile backers to pause for a period of time. The only thing we can assume is he’ll be looking to “do deals” and ensure he can position himself as a winner in all this.
What about our Portfolios?
Retirees should be well served by a portfolio that has a significant defensive allocation of cash and fixed interest. This ensures the certainty of spending no matter what sharemarkets are doing in the short term.
Those approaching retirement would likely have been increasing their defensive allocation of cash and fixed interest. Stick with the plan. That’s why gains are harvested when they appear.
Accumulators many years from retirement can continue buy quality assets, just at last years prices. And this is one of the rarely acknowledged facts in all the “billions wiped” stories. For every seller, there’s a buyer on the other end of the trade who is happy to own what someone is offloading.
Fear & Temptation
Recognise there will be a great number of opportunists in the form of media panic merchants trying to whip up the biggest frenzy possible. And whenever the market stabilises, and then recovers, the same attention will not be given to financial markets again.
This table shows the last 15 years of returns for an index comprising most of the stocks in the world.
There were plenty of sharp falls along the way which received news bulletin leading attention, but the upward long-term progress of financial markets never leads the news.
It’s also important to be mindful of investment opportunists. To expect a higher return an investor needs to accept a higher level of risk. There’s no getting around this.
Extreme volatility brings the opportunists out of the woodwork. Those high single digit or even 10% returns on unlisted credit, mortgage or real estate funds should be treated with extreme skepticism. Just because something is not volatile doesn’t mean it’s safe. High returns without risk are a mirage.
Do Nothing
Our message is always the same: do nothing.
The worst decisions are made when people are panicked and stressed. We emphasised this during the covid plunge and everyone who took on that advice came through it without issue. Markets recovered, which meant portfolios recovered.
As tempting as it is to assume we as investors should have exited earlier, or exit now, and wait until the dust clears for “certainty”, we’ll relay a story from one of our colleagues after covid. This adviser had a couple walk in as prospective clients a little over a year after the March 2020 covid plunge. The couple had decent superannuation balances, both sitting in cash.
They’d managed to pick the top before covid in February 2020. Switched their diversified portfolios to cash, and dodged the fall. They were feeling pretty good about their decision, but then financial markets started to recover. That wasn’t supposed to happen according to whoever they’d been listening to. They didn’t know what to do. Markets kept recovering. About a year later, markets were back to where they were. Then markets went higher. As this all unfolded, the couple were paralyzed about getting back in.
They were very deflated by their experience, and admitted to the adviser timing markets wasn’t as easy as it first seemed, and they needed help. Investors may fluke a timely exit, but it’s harder to be right twice. Their superannuation balances were now behind where they would have been, if they’d only done nothing. Compounding the issue, their ongoing contributions went to cash instead of buying into the recovery.
Don’t make their mistake.
If you have any questions, as always, your adviser is happy to talk with you about your plan and portfolio.
Other helpful resources
A chart pack of notable falls and recoveries in the US since the early 1970’s.
Our recent video on dealing with market falls.
Shane Oliver from AMP’s most recent perspective.
This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.
