Mar 17, 2023  | Tags: wealth, investment

Our insights

Many investors are easily spooked when times get tough. Reacting to a negative outcome is human nature and that in turn weighs heavily on the markets.

A global pandemic along with war in Ukraine are just the start of it.

The Reserve Bank raises interest rates - the share market falls.

The Australian Bureau of Statistics announces encouraging job data - the share market bobbles ahead.

The same ABS releases the latest soaring inflation figures - the share market skids back.

Investors are highly reactive, nervous creatures.

There are a number of effective strategies to accumulate your wealth in challenging economic times.

The most important is to remember and observe the first basic rule of investing.

“Our favourite holding period is forever”

It’s a famous quote from the Oracle of Omaha, Warren Buffett but it underpins the much weathered yet often forgotten or disregarded strategy to stay the course.

Part of the reason Buffett likes to hold his stocks is that he only seeks ones worthy of keeping rather than fanciful, flighty start-ups.

A similar sentiment is reflected in another of his quotes, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

It’s another dig at short-term investors scouring the market for a quick buck.

Still another glorious observation reflects, “Someone’s sitting in the shade today because someone planted a tree a long time ago.”

The clear message is to sow your investment seeds and watch them grow - at about the same pace a tree grows.

Buffett’s message is backed up by an analysis of the S&P 500 examining best and worst case scenarios for annual returns over all periods of time since 1926.

It proves unequivocally that volatility is mitigated by time.

The very worst outcome in any 30-year period since 1926 was an annual gain of 8%.

Conversely, those who play the short term game very much roll the dice.

The best 12-month return in that period saw the market climb 52.6% but the worst saw it tumble 43.8%.

You’d scarcely be worse off going to a casino.

Opportunity knocks

Buffett again tells us, “The best chance to deploy capital is when things are going down.”

Rather than being feared, economic downturns should be seen as an opportunity.

There are lots of them out there.

Share market

• Look for companies well-placed to weather a recession like health, utilities and consumer staples.
• Target ones that pay a good dividend so your investment is protected even if share prices fall.
• Be prepared to strike when you can buy good companies at a discount. CBA shares reached a peak of $59.33 in November, 2007, only to crash to a nadir of $29.64 by February, 2009 as the Global Financial Crisis bit hard. If you had invested $100,000 then, you’d have turned it into $347,500 by February, 2023 with CBA’s share price going past $100.00. That’s an annual return of 17.6%!
• Actively managed funds and bonds also tend to perform in tough times although it will pay to stick with investment-grade bonds to insure against the possibility of default.

Real estate

We all know real estate boomed in 2021 and early 2022 but has since undergone a correction of up to 10% in some eastern markets.

Adelaide house prices have by and large held their value. But there remains a strong opinion that many are still undervalued.

Equally, the correction seen in some eastern markets has left a great opportunity for investors to pounce, rather than buying at the peak of the market.

Investors now make up 40% of property buyers in Melbourne with rental prices maintaining strong returns.

Those who play the long game in Australian property are most likely to do very well.

Start a business

It’s been a difficult time for small business with rising costs and rising rent.

Throw in labour shortages as well as demand for higher wages to combat rising inflation and it all paints a pretty bleak picture.

But closing doors leave holes in the market and opportunities for savvy entrepreneurs to take advantage.

As some businesses reduce their advertising budgets and their exposure, don’t be afraid to leverage that opportunity to your benefit.

Invest in yourself

Starting that business is just one way to invest in yourself.

Pouring resources into yourself is the smartest thing you can do in any market, but it’s often last on our list.

That could mean tipping your time and money into education and training, so you can position yourself for a better job in a growing industry. It could mean learning new skills to diversify and give yourself more options.

It could also mean investing in relationships, or your physical and psychological health.

Whatever you do, even a little self-investment is sure to generate a positive return.

Get advice today

Regardless of the economic winds, growing your wealth is a whole lot easier when you work in tandem with a trusted financial adviser.

In tough times, this may hold true even more so if you are prone to second guessing your investment strategy. 

Sometimes, it’s reassuring to speak with a professional before making any big decisions that could seriously impact your financial position down the track.

That’s where Calder Wealth Management can help.

We are wealth experts who can help you make the best financial decisions for your long term interests.

There really is no substitute for quality financial advice from someone personally invested in your future.

At CWM, 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 Liz Wilson

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.