Noel Whittaker's Blog It’s a turbulent time for investors, with share markets jumping all over the place in response to factors which include a trade war with China and civil disobedience in Hong Kong.
Volatility is nothing new, but it does have the potential to worry inexperienced investors. One morning they wake up and the markets are showing a sea of green – they heave a sigh of relief, and hope that the market is resuming its upward movement. The next morning it’s all red, and immediately they feel sick in the stomach. They groan, “is this going to be the start of another GFC?”
Those emotions are normal and predictable. But they are blown out of proportion by the media. As soon as the market has a couple of bad days we hear, “it’s a fearful time for those about to retire!” It’s a nonsense statement, but it feeds on the belief that shares are inherently risky, and should be avoided at all cost.
Think about it. A person who is aged 65 and about to retire with $600,000 in super has pretty good odds of living for another 30 years. Anybody who has studied the history of markets knows there are two certainties: first, the best returns will come from shares; second, anybody investing in shares can expect four negative years out of every 10. This does leave six good ones to take advantage of.
So why is a person about to retire at 65 in a different position to someone aged 75, who is already retired? They both should have many years to look forward to, and they both can expect their portfolios to rise and fall along the way. All that the media’s scare-mongering commentary does is make them lose sleep at night.
The problem is that too many investors have short memories. In October last year the headlines were: “Shares dive to 12 month low.” Within two months they had changed to “Market posts best gain in two years” as the All Ordinaries hit 5662. At date of writing the All Ordinaries was sitting around 6550, which is a gain of around 17% since Christmas. This is a gain enjoyed by those of us who stick with our portfolios and don’t try to time the market. But many investors missed out again because they were scared off by the fall last October.
Repeatedly I hear “I am going to stick with cash till I get a clear sign that the market is on the way up again.” That is a fool’s game. The biggest jumps always come after the biggest fall, and they come suddenly. The secret of investing success is to choose good assets and hang in there for the long term.