We hope that CoVid hasn’t impacted your Christmas and start of the New Year too much. Special thanks to all those who’ve kept our health and other essential services going under difficult circumstances. It’s times like this when the real value of service to the community becomes obvious. Hopefully it’s a call to all of us to be positive and help create a better country each day.
Several articles at the top of this month’s news feed highlight the current volatility in markets, despite strong economies in many parts of the world. As interest rates start to rise, now expected later in 2022, investments based on potential rather than actual earnings, will struggle. As Shane Oliver reminds us, no one can predict the bottom of a market fall. Selling investments that have fallen is realising a loss – holding to a pre-determined plan in which expected falls are known, is a safer way to achieve better returns: it is often several days in a recovery that bring the most return.
To help me keep the current volatility in perspective, and taking a Balanced investor, we can expect a 15% fall at some time. Smaller falls like the ones that are happening now, are more common than you think. I’ve got a study of the six year period from 2009 to 2015 when the Australian Share market was up an average of almost 12% each year. Yet during this period of strong returns after the GFC, frequent falls occured:
- “Flesh wound” falls of between 5% and 10% happened 15 times, averaging 7.2% and lasting an average of 17 days each;
- “I really felt that” falls of between 10% and 20% happened 5 times, averaging 12.5% and lasting an average of 34 days each.
Yet thinking back on that period now, it was a period of good returns.
Wishing you health and happiness.
Tom and Kerrie
at Financial Springs