Focusing on the long-term can be difficult when the here and now is demanding your full attention.
Saturation media coverage – whether it be on mainstream media or on your chosen social media platforms – makes it hard to tune out what have so far been largely negative messages.
Such is the reality of a global health crisis.
While money and investment markets come second to health fears daily gyrations in investment markets can add another level to the stress of dealing with COVID-19 risk, social distancing, working from home or simply finding essential supplies at the local supermarket.
But as some sense of normality returns naturally people will begin tuning into their portfolios and super account balances. Normally paying attention to your investment portfolio is good advice. In situations like this – and the global financial crisis back in 2008 – the reality is that the best advice may well be to not look right now but rather try to focus on the longer term perspective.
A valuable source of perspective – in my view at least – comes from a US financial planner and New York columnist and author Carl Richards. He is a Certified Financial Planner but probably better known for his Sketch Guy column in the New York Times because he has the gift of being able to translate complex money problems in simple sketches.
In his weekly contribution last week he contrasted the free hand sketch of five days of market movements – imagine lots of up and down squiggles – with the long-term trend line of stock market performance over decades.
The simple message is do you want to focus on Days or Decades? You can find it here at his website behaviorgap.com.
It is a simple but powerful reminder of the need to look beyond the day to day – as confronting as it may seem – and focus on the longer term view.
What is encouraging is what Vanguard is seeing through investor behaviours both over the past month of March and for longer timeframes.
Looking at Vanguard’s range of retail and wholesale funds and ETFs there has been positive net cashflow for March with the majority of investors buying into equity markets. The outflows have been in the fixed income category which suggests investors are funding their shift into equities by rebalancing out of fixed income – which has largely done its defensive job.
Similar behaviour has been seen in Vanguard’s US business.
Since the high levels of volatility began in late February, between 62 per cent and 79 per cent of Vanguard US households who moved money on a given day went into equities. The share of households moving into bonds ranged from 18 per cent to 34 per cent over the same period.
Trying to time markets – particularly when you are trying to judge the bottom – is nigh on impossible. One strategy for volatile times that helps overcome the feelings of inertia is to dollar cost average or spread your investments over several weeks or months until you get to your target asset allocation. It is a way to spread the risk because you will end up with a range of entry prices.
Please contact us on 07 5444 0675 if you seek further assistance on this topic.
Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.
Reproduced with permission of Vanguard Investments Australia Ltd Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance. © 2020 Vanguard Investments Australia Ltd. All rights reserved.
Important: Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way.
Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.