Tactics for Turbulent Times
Tactics for Turbulent Times
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.
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, 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. Small savings and investment choices made today may make a significant contribution to long-term financial goals.
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.
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 have any questions or would like to discuss your loan account, please get in touch with your financial adviser, your Leveraged Relationship Manager, or contact us on 1300 307 807.
Things you should know
Gearing involves risk. It can magnify your returns; however, it may also magnify your losses. 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). Information is general advice only and does not take into account your personal objectives, financial situation or needs. The views of the author may not represent the views of the broader Bendigo and Adelaide Bank Group of companies (“the Group”). This information must not be relied upon as a substitute for financial planning, legal, tax or other professional advice. You should consider whether or not the product is appropriate for you, read the relevant PDS and product guide available at www.leveraged.com.au, and consider seeking professional investment advice. Not suitable for a self-managed superannuation fund.
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