True Financial

  • Home
  • My Prosperity Login
  • About
    • John Duncan – Fee Only financial planner
    • Fee for Service Financial Planning
    • Our Ideal Client
  • Advice
    • Benefits of Financial Planning
    • Cash Flow Management
    • Superannuation
      • What is Superannuation
      • What is a SMSF
      • Contributions Limits
    • Investments
      • Investment Philosophy
    • Insurance Advice
      • Insure The Stay-at-Home Parent
      • Income Protection Insurance
    • Retirement Planning
    • Estate Planning Advice
    • Business Advice
  • Articles
  • Video Library
  • Testimonials
You are here: Home / Uncategorized / COVID – 19 Update

March 20, 2020 by John Duncan

COVID – 19 Update

March 20, 2020

We’re deep in a global pandemic. The positive? Governments are responding.

Unprecedented times call for unprecedented measures. Interest rates to near zero. Governments putting money into bank accounts. Financial support for business. Government quickly realised the time for half measures was over. President Trump especially. He’s got an election to win at the end of the year. Previously he’d been coasting to victory. With the US economy pummeled, Trump’s no longer on a victory lap. Trump’s big stimulus may not be the last.

On an individual level, the important thing is getting through this. Physically and mentally healthy.

If you are feeling under stress that would be completely normal. If you’re feeling great that can be completely normal too. Various people will respond in various different ways. The important thing is decision making. We can help with clarity around decisions. Rarely are quality long-term decisions made when someone is feeling panicked or euphoric.

Optimism vs Pessimism

Feel free to watch this video before reading on.

It’s easy to look at these falls and conclude, ‘yes, they always come back.’ However, if we look at those charts, they’re absent something we’re being hit with right now. The narrative. The news. The story. The massive dose of uncertainty that was in the air. There was information swirling around all those occasions that led people to conclude it was time to get out. Just as there is right now.

If you can block out the noise surrounding the COVID-19 pandemic it will be much easier to be there for the recovery.

Will there be a recovery? It’s a very black and white scenario. Either we believe this gets better. Believe there will be a cure or a vaccine (the first live test has happened). The spread will eventually be contained. The recoveries will outpace new infections. Stimulus puts a floor under markets. Demand swells. Companies get back to business. Economies and markets come roaring back.

Or we don’t.

If we don’t, then there are much bigger problems than our portfolios or money. That’s a serious statement. The toilet paper wars haven’t shown humanity in its best light, but the best global medical minds are on the case. No one can seriously argue that a cure or vaccine won’t be found. That argument is a bet against all of humanity’s progress to this point. We’re leaning on the side of optimism. It hasn’t failed yet.

Reactions

A recovery will eventuate. The timing is uncertain. The economic impact is unknown.

This event is provoking various reactions.

The expected – some people are concerned about their portfolio; most are happy to wait it out.

The unexpected – some people are excited without considering broader implications.

Don’t panic. Don’t make impulsive changes. Stick to your plan. We reinforce these messages regularly. It stops investors harming themselves long term. It’s also beneficial to help people understand the benefits of rebalancing a portfolio after a fall. After market falls, expected returns increase. This can benefit investors in the recovery.

These messages are everywhere now. It’s good that investors have more clarity around market falls. Understanding they’re not fatal. In some ways, this has worked too well. Don’t make impulsive changes also can apply to buying as well as selling.

We’ve seen instances of investors broaching the idea of margin lending or pulling money from mortgages to take advantage of what they see as an unprecedented opportunity.

This is where good financial advice and a sober second opinion prove valuable. After a full analysis, it may be advantageous for the right investor with a long horizon. However. ‘Is this a good opportunity?’ needs to be accompanied by ‘how secure is my employment?’. Economic activity is stalling. Imagine taking on a bravado loan, seeing another sell off and losing a job if your house price declines.

There hasn’t been a glove laid on real estate yet, but Airbnb rental entrepreneurs now have no income. Open houses will go quiet. Auctions be postponed. International students who fill apartments are now tethered to their own country. While guidance from Real Estate Institutes in Australia has been slim, the British Columbia Association of realtors called this an “unprecedented paralysis of economic and social activity”. Jobs are tenuous in many industries. Maybe not the time to be dipping into home equity. A personal financial planning picture needs to be fully weighed against the lure of investment opportunity. Feeling negative or positive, the reference point before making any decision should be a discussion with your adviser about your goals and plan.

Timing the Market    

Superfunds are overwhelmed. People are bailing to cash. Visit any internet investment forum and you’ll see why. This isn’t a permanent decision. They’re intending to return when this all blows over. They concede they missed the sell off and have now crystallised a loss. But they apparently know when it will be time to get back in.

While the recovery will eventuate, the path to the recovery won’t be smooth. Bottoms are bottoms in hindsight. The bottom might come with a 20% positive month, followed by an 15% drop. Almost back to where things started. That might give someone second thoughts.

Three charts to highlight the folly of market timing. This is the US S&P 500 in the aftermath of the dotcom bubble and 9/11. This chart’s a monthly chart. The bottom appears evident. We’ve highlighted it with the green circle. There was another sell off, but if an investor managed to pick the bottom and hold their nerve, the rewards would flow. It all seems very clear.

Now the same chart, just on a weekly basis. It’s a little messier. Not just a straight up, down and up. Note another dip and recovery appears to the left of the circle (the true bottom), but it wasn’t quite the right point to re-enter.

Now on a daily basis. The movements are no longer smooth. A recovery that seemed very clear in the first chart is now filled with much more noise to navigate. Picking the bottom in October 2002 looked pretty smart until the sell off in January 2003 which lasted 6 weeks. It was nearly back to that first bottom again before the upward momentum stuck.

An investor jumping to cash creates a decision-making chain. When exactly do they feel safe? What signals do they use and what noise do they disregard? How do they successfully identify their re-entry point when there is no certainty around the bottom? There may be false starts before the recovery fully gathers a head of steam. How does someone not confident enough to sit tight find the confidence for their re-entry?

If you have any concerns, speak to us. No matter what impact this virus might have, it is always good to review your overall financial goals and objectives, and think about making them stronger. That’s the smart move in stressful times like these. We are all in this together, stay calm and stay healthy.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.

Filed Under: Uncategorized

Keep up to Date

Powered by VMA-Emailer

Meet John Duncan

John Duncan - Financial Planner

Director for True Financial - John Duncan - Fee Only financial planner To receive the best financial planning advice you need the best financial planner. John Duncan is certainly in that category. John is a financial planner who is unique in not only his high level of knowledge and experience in financial planning but also in the amount of areas that John advises in. A Financial Planner with a strong Education background John is a Certified … Read More

Post Categories

  • Budget (5)
  • General (27)
  • Insurance (2)
  • Investment (14)
  • Property (5)
  • Superannuation (4)
  • Tax Tips (7)
  • Uncategorized (49)

Like us on Facebook

Recent Posts

  • Don’t Vote with your Portfolio
  • Investing Has Been Solved
  • John Hussman: Man Who Predicted…
  • Bank Runs
  • What Port in a Storm?

Privacy Statement

See our Privacy Statement here

Keep up to Date

Powered by VMA-Emailer

True Financial is an Authorised Representative No. 428771 and Credit Representative No. 428873 of FYG Planners Pty Ltd, AFSL/ACL No. 224543. ABN 29 009 541 253

Contact Information: Address: 23 Errard St Kelvin Grove 4059 - Phone: (07) 3169 2570 - Email: admin@truefinancial.com.au - Web Design & SEO by: Visual Marketing

Information provided on this website is general in nature and does not constitute financial advice. True Financial Pty Ltd will endeavour to update the website as needed. However, information can change without notice and True Financial Pty Ltd does not guarantee the accuracy of information on the website, including information provided by third parties, at any particular time. Every effort has been made to ensure that the information provided is accurate. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult a financial planner to take into account your particular investment objectives, financial situation and individual needs.True Financial Pty Ltd does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this website. Except insofar as any liability under statute cannot be excluded, True Financial Pty Ltd, its employees do not accept any liability for any error or omission on this web site or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided on this website is owned by True Financial Pty Ltd. You may not alter or modify this information in any way, including the removal of this copyright notice.
Manage Cookie Consent
To provide the best experiences, we use technologies like cookies to store and/or access device information. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Not consenting or withdrawing consent, may adversely affect certain features and functions.
Functional Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes. The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.
Manage options Manage services Manage {vendor_count} vendors Read more about these purposes
View preferences
{title} {title} {title}