Mar 30, 2020  | Tags: Investment, covid-19, coronavirus

Our Insights

All investors are feeling the impact of COVID-19 to some degree as it has wreaked havoc over the share market and global economy.

Fears are continuing to rise over a global recession, and the huge uncertainty is causing investors and everyday people to panic about their investments.

But while you may feel powerless, there a measures you can take to protect your investments and navigate these times with a level of confidence.

The following tips cover both preventative measures and decisions to make during a period of market turmoil.

Review your risk strategy 

It is important you review your risk strategy to determine whether the current risk factor of your investments is suitable for your financial situation and where you want to get to.

Generally, your risk strategy will depend on your age and level of savings. Younger Australians will often invest with a higher risk / high return strategy, whereas older Australians who have acquired retirement savings will take a more conservative strategy with lower risk. 

Your risk strategy will also determine which other protective measures you use, so this is a must-do first step for every investor. Depending on where you're at, and depending on how you've been impacted through this tumultuous time, you may need to reconsider your risk strategy.

Diversify

If you’re looking for a way to reduce your risk while also maximising your returns, diversifying your portfolio is the way to go. By allocating your investments to different sectors, asset classes, currencies and companies in different locations, it increases your chances of maintaining your money and reduces volatility in the event of a crisis. As sectors will be affected on varying levels in a crisis, having multiple investments is a safety net for you to ensure you don’t experience big losses to your portfolio.

There is also a high likelihood that while some of your shares may be down in a crisis, others could be up.

When diversifying your portfolio, also make sure to invest in durable companies which are likely to withstand a crisis and prosper in the future.  Because the share market is volatile you should consider alternatives such as property, bonds, cash, fixed interest as well as investing locally and internationaly. 

Where is the opportunity? 

When markets collapse and there is a lot of financial pain, there is also opportunity. There are countless examples of people prospering on the back of post GFC and September 11 market meltdowns.

Take a step back, strategise and talk to your adviser. The right investment decision now could change your life for the better.

Don’t panic and play the long game 

Most importantly, don't panic or make any rash investment decisions during a crisis. It is often better for you to protect your investments rather than to stress and sell them off for a cheaper price. Remember that investing should be a long-term game and you need to look beyond the crisis to ensure you gain the best returns. You investment decisions should be based on your wealth strategy and goals, with the help of an experienced adviser, not your on emotion.

Playing the long game also means you can take advantage of compound interest. Investing early, being patient and taking the emotion out of it will pay off, long-term. The following case study from moneystart.gov.au highlights the benefit of compound interest. 

Case study

Here's a good example from moneystart.gov.au:

Lorenzo and Sophia both decide to invest $100,000 at a 5% interest rate for five years. Sophia earns interest monthly, and Lorenzo earns interest at the end of the five-year term. 

After five years:

Sophia has $128,340

Lorenzo has $125,000

Sophia and Lorenzo both started with the same amount. But Sophia gets $3,340 more interest than Lorenzo because of the compounding effect. Because Sophia is paid interest each month, the following month she earns interest on interest. 

Get Advice

It is absolutely essential that you have an investment plan and work closely with an experienced financial adviser during challenging times.

The team at Calder Wealth Management are here to help you through any investment fears and worries with sound strategy and knowledgeable recommendations.

Talk to the team at Calder Wealth Management. Call us on (08) 8373 3333 to schedule your free initial appointment. 

Written by Ben Calder at Calder Wealth Management.

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own  circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.