Ask An Adviser - What's In Store For The Economy With The High Inflation Rates? (1)

Top answer provided by:

Ron Pratap

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Hi Drew,

This is a great question, and I am sure one that a number of people are thinking about at the moment as there are two sides of the argument to consider which is: is this the bottom of the market volatility we are experiencing or are we in for some more hurt before things get better?

I think you need to first look at your cashflow and budgeting before you decide to enter the market, as you want to use funds you do not require in the short term, e.g. what is your minimum timeframe for investing? Investing in shares may be 5-7 years depending on the type of investments you want to purchase, as pulling out of investments if they experience short term volatility may mean selling at a loss.

You need to consider how long you are willing to invest for and what amount you are comfortable allocating to these investments, while allowing yourself an emergency cash fund you can access if needed.

If you are worried about continued market volatility, you should consider a dollar cost averaging strategy which means not making a large lump sum investment and making smaller regular contributions which will allow your portfolio to benefit in the long term if the market experiences further downward trends before things get better. Historically, bear markets have lasted between 12-18 months and the recovery we saw in March 2020 with a bounce back in 149 days may take longer this time around with the average being about 2 years for a market to recover from a crash.

Investors are wary at the moment with a number of factors to consider such as high inflation, recession fears, fallout from COVID and back-to-back interest rate increases however, this should not put you off entering the market as times like this is when people with available cashflow really make a return on their investment in the long term when markets recover.

You should also consider timing the market vs time in the market as it is very hard to time the investment market and know if it will go up or down from here, so time in the market and staying invested will increase your chances of return on investment by buying in at regular intervals and time you hold the asset.

Also, consider what investments you would like to purchase as a number of funds, shares and assets are at a low point- not because of their true value, but because of the economic environment we are in, which is a potential to pick up some bargains on undervalued investments. Remember the term ‘buy low, sell high’. This is the same philosophy however, you want to ensure you are buying into good quality shares and assets that will hold up during times of volatility or you may want to put a higher percentage of your contributions into blue chip shares that are historically safer, e.g. ASX 200 Shares and a small portion towards speculative shares that you think might perform quite well.

While inflation has impacted share prices both abroad and domestically, there is no reason why you cannot get good performing shares for the long-term during periods of high inflation including in areas such as energy, agriculture, cybersecurity, staples and natural resources.

As always, do your own research before making a decision or speak with a licensed Financial Adviser to discuss your overall goals and if investing is appropriate for your situation and objectives.

While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.

Article by:

Ron Pratap

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