Do I sell?
Macquarie's next generation robo advice arm, Owner's Advisory, are advising their members to get out of the market, with global jitters expected to cause a downturn in equities - what does this mean for your investments and what are advisers recommending?
In Macquarie's words:
It is time to be safe rather than a hero. Time to sit in cash for a month or two, then look to redeploy when the market storm has passed.
One of the common laments of investors is ‘no one told me to sell’ … well you can’t say that of Owners Advisory – we don’t get paid by funds under management, we just get paid if we give good advice through the cycles – and our current advice is sell and move to the sidelines.
- John O'Connell, Chief Investment Officer, Owner's Advisory
We asked Neil Salkow, Geoff Orr and Dean Van Zyl what they thought if their client saw this advice and wanted a second opinion -
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Top answer provided by:
Dean Van Zyl
Platinum Adviser Dean Van Zyl responds:
‘Expert’ advice such as this is a great example of why it can be difficult and stressful to successfully invest in stock markets. There are many opinions and noise in the media or from friends and family that we quickly become overwhelmed and end up making an emotional decision.
If you are faced with advice such as this, there are some guardrails you can set up to ensure you are guided to make the best decision that will achieve your objectives.
It is really important to remember that the experts don’t know what your goals or circumstances are. They are merely sharing an opinion. They don’t know the purpose of your investment portfolio or for how long you need to invest. This means that staying invested or going entirely to cash could be the right or wrong decision based on your circumstances.
These three rules have been at the cornerstone of my clients’ decision making when faced with similar opinions:
Question 1 - Why?
Question 2 - When?
Question 3 - How much?
Sit back and reflect on your equities portfolio and why you set it up in the first place. Is it a portfolio for a home deposit? Your child’s education? Retirement income in the future? Once you have determined WHY you invested your money you can then identify WHEN you need that money back safely in your pocket to achieve your objective.
For example, if you answered: 1. I am saving for a home deposit, 2. In 12 months then perhaps you do need to think about moving towards cash to prepare for that purchase. If you answered: 1. I am saving for retirement income, 2. In 12 years then a long-term view to your investment portfolio is important.
The reason you need to ask these questions and be careful you are not making an emotional decision is because over the 20 years to 2009 the investor who missed only the best 30 trading days out of the 5,240 trading days in this period, saw their return reduce to 3.39% from 9.48% for those who stayed the course! An investor who sells and moves to cash will commonly go back in to equities too late!
Legendary investor Peter Lynch adds weight to this statistic when he said, “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves.”
Finally, after answering the first two questions, reflecting on HOW MUCH you will actually need to achieve your objective will give you the final confidence required to hold or sell your equities. Do you need 4% per annum or is it 9% per annum? It’s important to know this because lower return required equals less risk required. You can then decide whether you go 100% cash, 50% cash or remain focused in high quality companies fully invested in 100% growth. A general rule of thumb is that the longer the timeframe you have until you need your money allows you to focus more on growth and take more risk. Risk is healthy providing it is in line with your personal circumstances. A shorter timeframe means that you should be reducing your risk rather than trying to time the market.
These guardrails will focus you on your STRATEGY first and the MARKET second. It will take away at least part of the emotions one can get caught up with when dealing with these difficult questions.
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