Weathering the current storms of market volatility
It has certainly been a
stormy time for investors.
This has been the ASX200’s
worst month since 2008.
It’s now at its lowest level
since July 2013. Recently,
share markets around the
world have been in
something close to freefall. The US share market has plummeted by almost 10%, while the
Australian market has fallen by 12% since end-July.
Much of what has taken place in global financial markets in recent days has been driven by concerns
over the pace of growth in China and further volatility on Chinese equity markets.
There is an increasing belief that the world’s second biggest economy has slowed substantially. This
concern has been increased by three developments. First, China has devalued its currency. While the
movement has been relatively small, and only partially offsets the trade-weighted appreciation of
the yuan caused by the strong US dollar, to which the yuan was pegged, it took many by surprise.
Second, the Chinese share market has fallen precipitously. Third, commodity prices have weakened
sharply. However, the Chinese share market is now back to its level of December 2014 and it bears
little relationship to the Chinese economy in total.
As well, there have been other worries. There is the ongoing Greek situation, the unsettled position
taken by North Korea, a very weak second-quarter GDP result for Japan and the prospect of
imminent tightening of US monetary policy. Add to that list the fact that markets were looking a bit
overvalued and you have all the ingredients of a correction.
It’s worth noting that although the fall in share prices seem severe in a short term context, Global
share markets have produced extremely strong returns over recent years.
What does market volatility mean for your investments?
For accumulators:
It’s time in the market, not timing the market, that’s important. So, if you can ride out the volatile
times, you could have a smoother return over the long term. Diversifying your investments across
different asset classes can help to defend against volatility and reduce investment risk.
It’s also important to manage your expectations. A slower global economic growth rate means a
period of lower returns on traditional asset classes. Returns in the decade leading up to the GFC
were abnormally high, so it’s important not to use these returns as the norm. It’s also important to
be aware of your own tolerance to risk so that you can assess new investment opportunities as they
arise.
For pre- and post-retirees:
If you’re in retirement or nearing retirement, it is understandable you want to protect your
investments. After all, your investment returns play a vital role in funding your retirement. In times
of volatility it’s easy to react emotionally. But now is the time to keep a level head and stick to your
long term investment strategy.
Trying to time the markets and responding to every market movement could leave you considerably
worse off. It’s a good time to seek professional advice and remember that markets do recover. Don’t
let short-term volatility get in the way of your longer-term needs
Why not schedule a meeting with your Financial Adviser now to discuss any concerns?
Disclaimer
Information current as at 1 October 2015 - This information is of a general nature only and has been prepared without taking into account
your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information,
it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication. You should read
the Product Disclosure Statement (PDS) before making a decision about a product.