In the current investing and economic climate that we find ourselves in, there continues to be a great deal of uncertainty around inflation, interest rates, global bank issues and fears of a recession. In the last few weeks, uncertainty has flooded outlooks further, with the collapse of Silicon Valley Bank and more recently Credit Suisse – which was Switzerland’s second largest bank with a 170 year history.

A decline in wealth or a drop in portfolio value can be a stressful time and over the last month, we have seen the ASX200 decline by 4.1%. While it hasn’t seemed like smooth sailing in the short term, what it is important to remember is that since January 1, the same ASX 200 index is up 0.25%. Over the past six months since late September 2022, the index is up 7.75%, in the face of 10 consecutive interest rate rises.

History shows us that while each rise and fall in the sharemarket and economic cycle are different, the basic principles of investing will continue to apply. Below are a few useful things to remember in times of market stress.

Time is on your side

If you are investing in growth assets like shares and property, then it would be safe to assume your adviser has discussed your objectives and has put together an investment strategy to meet them. Short term swings in markets are inevitable and the longer the time horizon, the greater the chance that your investments will meet your goals.

Over the long term, history has shown us that growth assets will perform strongly. While the annual returns can be volatile, it’s important to hold a long-term view as this is where you see the benefits of the strategy along with a smoother return. Since 1900, Australian shares have negative returns in roughly two out of every ten years. However, if you look at rolling 20-year periods, there are no negative returns – another reminder to stay invested for the long term.

Ignore the Noise

Investor emotion and sentiment can play a large role in the swings of investment markets. Profit, Dividends, Rents and interest rates – the fundamentals, are not the only things that drive share prices. The important thing is to not get swept up in the emotional tornado, which can be easier said than done. Concerns around the economy and investments can be magnified, as they are in the current climate, but they eventually pass. At Hewison Private Wealth, your strategies are put together to deal with volatility, by owning quality assets for the long term.

Since January 1995, including dividends, if you were fully invested in Australian shares you would have returned around 9.3% p.a. If you are attempting to time markets and jump in and out trying to find the next big thing, then your returns change drastically. If you missed the best 40 days in the same time period, your return drops to 3% and if you were able to avoid the worst 40 days, the return is boosted to 17.1%. The key message is that timing the share market is not easy and instead having a long term and well diversified investment strategy is the best course of action.

Now is a critical time to have a robust investment strategy in place and to stick to it as market volatility can create good buying opportunities.

The Hewison Team are always here to answer any questions you have about the current climate or your portfolio strategy.