I’m 42 and currently employed. I currently have 150K invested in mainly Australian shares. Should my international vs national stock investment distribution change because of the Covid-19 Pandemic? If so, where should I concentrate?
Gavin in Cronulla, NSW
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Hi Gavin, thanks for your questions.
What this pandemic has certainly demonstrated is that no market/economy has been immune from its impact.
I believe at times like this, sticking to the fundamentals becomes more important than ever.
Having an investment portfolio that is well diversified, aligns with your risk appetite (is your investment style more ‘balanced’ in nature, or is it more high-growth orientated?), is cost effective, and provides the opportunity to regularly re-balance (ensuring that you are not unduly overweight/underweight particular asset classes), is a prudent way to managing one’s overall investment risk.
Staying disciplined with your investment approach (taking the emotion out – knowing that the market is cyclical and there will be periods of growth and decline) and not becoming overly protective (in other words, becoming ultra-cautious so that it prevents you from remembering why you invested this way in the first place), are all worthwhile reasons to remain rational and to ‘stay the course’.
In short, one answer to your main question is, ‘it depends.’ It may depend on several factors that are specific to you – your goals, your investment time horizon, and your appetite to risk, as touched on above.
From a global perspective, it appears that Australia has weathered the coronavirus pandemic, better than most countries. The government’s economic policy response has been strong, and our major trading partner China (at least for now!) is a couple of months or so ahead of the rest of the world, with regards to its recovery. With that said, one could argue that the recovery for our economy should be stronger, which could mean that Australian assets may perform better than global asset peers, particularly if we see a rising AUD, which is what has happened recently.
On the flip side though, there are those that hold a view that sectors (companies with too much debt and cyclical in nature - that rise quickly during a boom, but fall quickly during a bust) and countries such as the US, Europe and ourselves, that have too much exposure to China (demand and their supply chain, reliant on tourism and student intake), should be avoided. Whilst this may be a view for the short term, investors really need to take a longer-term view.
The bottom line is, no one has a crystal ball and truly knows for certain.
The truth is there will be buying opportunities in both international and domestic investments when the market drops. One good way of taking advantage of this fact, in a more conservative way, is to drip feed your money in by making purchases over a period of time. This way, if the market falls further, you know that you have not over committed yourself, and you have bought some investments at a reasonable price. This approach will also help with the ‘sleep better at night’ factor.
As to where to invest, ensure at least that some of the fundamentals are in play:
- Consider investing part of your cash reserves or buffer in your purchasing opportunities that best align with your risk profile, instead of selling out of and then buying into investments, as this will trigger additional transaction costs for you, and impact your overall net returns.
- Ensure that you are investing in an appropriate mix of investments. Include asset categories that move up and down in different market conditions, so that you can protect against significant losses. Do not have concentrated risk in any one particular asset class, as this could potentially bring the bulk of your portfolio down, should it fall.
- Consider a dollar cost averaging strategy. This will allow you to buy more of an investment when its price is low and less of the investment when its price is high.
Remember to stick to a plan/your plan, do not make rash decisions, and bear in mind that you no doubt are investing for the longer term. There will be troughs and peaks on your investment journey, and if history has taught us one thing with investing, it is this – ‘that markets will eventually recover’!
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