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Tactics for turbulent times

8 May 2020 |Investment strategies
Discover how gearing can be applied to the right client's investment strategy to support their financial goals on a chart background.

Tactics for turbulent times

8 May 2020 |Investment strategies
Investors are re-learning old lessons in new market conditions.

To say current conditions are unprecedented may be to understate the challenge COVID-19 poses to all aspects of our lives. Phrases like social distancing and flattening the curve have quickly entered everyday usage. There are also timely reminders for investors; including compound growth, the discipline of averages, the liquidity gem and diversification.

Compounding Averages

Would you rather have one million dollars today or the sum of one cent doubled every day for 30 days? The million dollars will lure some people. But the growing pile of one-cent coins will surpass ten million dollars by the end of the 30 days. Unfortunately, this kind of compound growth also explains how a local illness can quickly become a pandemic.

The only thing we can say with any certainty today is that the share market will either go up or down. Trying to guess the market’s lowest point is a fool’s game. Instead, disciplined long-term investors make regular investments over time - called dollar-cost averaging. When aligned to financial goals, it can remove irrational biases from investment decisions.

At each investment date in the cycle, the price may be higher or lower than previous values. Over time, in today’s choppy, non-trending markets, the average purchase price is likely to be better than if you had tried to time the market, waiting for the lowest price.

Put simply; your investment dollar may stretch further in the current dip. Our Instalment Plus feature can enable this approach. Compounding means small savings and investment choices made today may make a significant contribution to long-term financial goals. A regular investment plan adds discipline and subtracts emotion.

The Art of Liquidity and Diversification

Even seasoned investors can overlook the benefits of liquidity. One aspect is periodic investment income, rent or dividends, and whether it will offset ongoing costs like interest on a loan or asset maintenance. Today’s property and share market investors are both re-learning that income is not guaranteed. Depending on your circumstance, you may be able to reduce some uncertainty by fixing borrowing costs and prepaying.

Property, shares, commodities and bonds have all been significantly impacted by COVID-19. Share markets are the most visibly affected because of continuous public pricing. We are yet to see the full impact on less frequent or privately traded assets.

The benefits of diversification seem less clear when all asset values fall at the same time. But the art of diversification goes beyond allocating money across uncorrelated assets. It means building a portfolio that is resilient in unexpected conditions. Rather than selling into a market dip to do this, some investors may find it easier to borrow against an existing share portfolio to diversify into other investments.

In short; whether cash is king may be debatable, but planned cash flow, balanced liquidity and artful diversification never go out of style. A Leveraged margin loan is an ideal tool for suitable investors to adjust a portfolio; taking advantage of tactical opportunities without locking in current capital losses.

Focused Flexibility

The tactics for investing in turbulent times are little different to other times. Making better decisions means knowing your goals, having a plan to reach those goals and building investment flexibility that can adapt to changing circumstances rather than triggering portfolio panic.

If you would like any further detail about how Leveraged margin loans can support your clients’ financial goals, please contact your Leveraged Relationship Manager or call us on 1300 307 807.

Issued by Leveraged Equities Limited (ABN 26 051 629 282 AFSL 360118) as Lender and as a subsidiary of Bendigo and Adelaide Bank Limited (ABN 11 068 049 178 AFSL 237879). This information is correct as at the time of issue, and is for general information purposes only. It is intended for AFS Licence Holders (or authorised representatives of AFS Licence Holders) only. It is not to be distributed or provided to any other person.

 

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