Global Financial Crisis (GFC) vs Coronavirus :
The escalation of the Coronavirus (COVID-19) into a global pandemic has sent a shockwave through both financial markets and everyday life. We’ll stick to focusing on the financial markets (and leave it up to you to work out the best times to score toilet paper).
A key difference between COVID-19 and the GFC in 2008 is that the COVID-19 is a health crisis that is heavily impacting the financial markets, not a standalone financial crisis.
This doesn’t make people worry any less, and that is completely understandable in today’s uncertain climate. Our investment and superannuation experts are here to reassure you that we are in this together. If you need support regarding your superannuation, and you are a smartMonday PRIME or DIRECT member, you can reach out to a smartCoach for support on making decisions that are right for you. Or we recommend chatting to a financial adviser before making any decisions that can impact your ‘bright weekend’ aka your retirement.
Why are the markets so crazy (volatile)?
Investment markets work based on efficient exchange of information. Generally speaking when information is available, understood and there is time to digest all the news, markets work best. Volatility occurs when information has an uncertain outcome, which is the current situation concerning the fast spreading COVID-19 pandemic. So, investors have had difficulty digesting, understanding and responding to the unknown economic implications of COVID-19.
We’ve learned new terms like ‘social distancing’ and having restrictions on our travel and daily life. Adding to the health news flow there are many announcements by central banks and governments of economic support. Many of these announcements are designed to placate markets and generally speaking are meant to improve sentiment but often have just added more uncertainty.
How much money have we lost?
The share market falls over the past month can be generally measured (not to be dramatic) amongst the worst on record.
For those of you that love numbers – the S&P 500 Index (US Shares) daily change shows very high volatility – large drops, and large recoveries over short time frames = unpredictable volatility.
Source: Factset Research Systems Inc. , as at 20th
What has this meant for year to date investment returns?
Returns for almost all investment strategies with an allocation to growth assets are generally expected to be negative since the market peak on 20th
February 2020 to 18th
Strategies that have a higher allocation to listed shares (shares bought and sold on the share market) have performed the poorest in this time period. However, analysing a few days of data represents a ‘short-term view’ and you should consider your investment time horizon before making any changes to your investment strategy. For example, over the previous 10 years, share strategies generally have had the highest returns of all key asset classes by a large margin. This is why ‘it’s not about timing the market, but time in
Members invested in the more diversified options, such as a “balanced” option have generally benefitted from exposure to many asset types including investments with positive returns through volatility, such as government bonds. Here diversification (spreading your eggs over a few different baskets) will have done its job and should reduce the impact of the volatility and loss for those members.
Should smartMonday members be worried?
If you are in retirement (or approaching that time), consider all your options before making any significant changes to your investments. This may include reviewing your retirement strategy with the assistance of a financial adviser or if you are a smartMonday PRIME or DIRECT member, chat to a smartCoach, to see if your objectives are still being met.
Should older members be worried?
If you are in retirement (or approaching that time), consider all your options before making any significant changes to your investments. This may include reviewing your retirement strategy with the assistance of a financial adviser or smartCoach to ensure that your objectives are still being met.
If you haven’t made an active choice about your investments, then you are invested in the smartMonday’s MySuper default investment option (‘lifecycle approach’). For those members closer to retirement, our MySuper lifecycle automatically adjusts a members’ exposure to growth assets based on the members age (see MySuper graph below). Through this strategy older members are invested in a lower risk investment portfolio and will be likely to be less affected by the market volatility as a result of the COVID-19
smartMonday MySuper – a lifecycle approach to investing
Riding it out versus Locking it in;
Superannuation is a long-term investment. Changing or redeeming your investments after a market downturn is a big decision that shouldn’t be taken lightly, and depends on several factors including your age, life stage and risk appetite.
Look at any long-term graph of the share market like the chart below, which investors call ‘the wall of worry’.
In these volatile times it might be reassuring to note that previously the overall long term ‘trend line’ has gone up in value – meaning over time the share market tends to increase in value, despite the short-term drops. You won’t make money stuffing your mattress with cash but instead look at the appropriate time horizon for you and seek support before making a decision.
Here’s the chart investor’s call the ‘wall of worry’:
ASX, AMP Capital
Volatility is a key ingredient of the share market and it should be expected from time to time. Although, past performance is not an indicator of future performance. None of us can predict the future, we can only make decisions based on what we know today, and with the support of experts.
And yet as shown in the chart below in the past, over time, even with the previous drops, over the long term, the value of the ASX 300 is up.
Factset Research Systems Inc. , weekly data to at 13th March 2020
What do to next:
We recommend that you seek financial advice before making any decisions in relation to your investment strategy. You should chat to a financial adviser or if you are a smartMonday PRIME or DIRECT member you can reach out to a smartCoach for support on making decisions that are right for you.
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