Aug 04, 2022  | Tags: Investment, strategy

Our insights

It’s been a white-knuckle ride for investors in 2022.

The All Ordinaries Index ended the 2021-22 financial year 11 percent down - its worst result in a decade. Dividends also took an 8 percent hit. 

Aggressive inflation, falling property prices and the aftermath of the pandemic were bad enough.

But the effect on energy prices and food supplies, triggered in part by the war in Ukraine, has created a perfect storm making it picnic time for the bears.

So where to from here?

Is the worst over and how should you think about investing going forward?

Winners and losers 

The biggest avalanche will still leave a diamond or two in the rough. 

In Australia, those diamonds have been the utilities and energy sectors.

Often strong performers in times of high inflation, utilities rose 29 percent in the financial year with the likes of APA Group and Origin Energy both strong performers. 

The energy sector rose 24.5 percent with Whitehaven Coal, Viva Energy and Woodside Energy posting handsome gains, defying the strong campaigning of green interests.

The industrial sector basically broke even, finishing 0.4 percent in the black.

This was in stark contrast to information technology stocks which lost 39 percent.

While consumer discretionary nosedived 23 percent as spending tightened off the back of lockdowns and rate rises. 

But it is prudent to recall a stoic old adage: “Past performance is not an indicator of future performance”.

It’s a disclaimer that holds ever true and is overlooked by novice investors at their peril.

The market’s next reaction will be to what has yet to happen.

Not so hot property

A third interest rate rise in as many months has put the brakes on Australia’s booming property market.

And while Sydney and Melbourne have witnessed some significant falls in property values and witnessed auctions without a single bidder, the impact in Adelaide has been far less severe.

June housing prices in Adelaide still rose by 1.3 percent according to CoreLogic despite national returns slumping 0.6 percent. 

Sydney was 1.6 percent down while Melbourne fell 1.1 percent. 

Further rate rises are expected through to December which will almost inevitably tilt local prices into reverse and further slow clearance rates.

But senior economists are confident the RBA will be wary of too many rate rises that could potentially crash the housing market and trigger a recession.

Rather, real estate agents are already seeing green shoots as buyers consider taking advantage of price reductions. 

A world of pain

In many parts of the world, the economic picture has been even more bleak than in Australia. 

The U.K.-based FTSE 100 largely avoided the bloodshed, slipping just 4 percent.

But in the U.S., the S & P 500 posted its worst first-half performance since 1970, down 21.1 percent. 

The NASDAQ plummeted more than 30 percent while cryptocurrencies have been annihilated.

Bitcoin is down 59.6 percent, with Solana suffering the biggest loss, losing 81.8 percent of its value.

Incredibly, 10-year U.S. Treasury bonds, the barometer of world borrowing markets, suffered their worst first half since 1788!

Bloomberg reports that it is the first time in 48 years that stocks and bonds have fallen simultaneously.

The only real gains have been made by oil and the greenback. 

The West Texas Intermediate (WTI), one of the primary global oil benchmarks, is up a whopping 39 percent while the US dollar has rallied 9.3 percent at the expense of most other world currencies and commodities.

Weathering the storm

Holding your nerve when the market is fluctuating is the acid test for any investor.

In times of uncertainty, it can be challenging to ignore the barrage of fear-mongering headlines and stay on course rather than crystallise losses.

Remembering the four solid pillars of investing is worthwhile in turbulent times. 

Goals - Don’t forget why you began investing and what the end game is. Stick with the plan, regardless of market conditions.

Timeframe - With your goals underpinned, consider your timeframe be it short, medium or long term. The more time you have to invest, the less market fluctuations will impact you.

Value - Shop around to find the best investment options. Consider professional management depending on the size and needs of your portfolio.

Diversify - It is the golden rule of investing and more important than ever during volatility. Balanced portfolios continue to be the best performers regardless of market conditions.

Opportunity knocks

Historically, bear markets have lasted an average of 16 months which would put us around halfway through this current downturn.

Equally, a first half reverse in the stock market is repeated in the second half of the year around 50 percent of the time.

One certainty you can take to the bank is that the market will eventually rebound. It always does.

But knowing exactly when it will reach its nadir is beyond the grasp of even the most successful economists. 

One smart way of hedging your bets is to buy back into the market incrementally at monthly intervals, thus averaging your investments and giving yourself the best chance of buying low. 

Get advice today

A market in free fall can panic investors into making some very expensive mistakes.

That’s why if you are feeling nervous and unsure about your investments it is imperative to garner some quality independent advice before acting.

A well-balanced portfolio with a view to the long-term will not suffer from intermittent corrections or fluctuations in the market.

Calder Wealth Management are financial experts who can help you make the best financial decisions for your long term wealth plan.

We pride ourselves on leading our clients into the future with structure, financial stability and confidence.

Contact us today to discuss all of your financial needs and concerns.

Written by Ben Calder.

The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on Calder Wealth Management’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

CWM specialises in wealth management with a focus on advice, investment, sustainability, insurance and finance.