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Hewison Insights

Why it’s important to remain invested in the sharemarket

Nathan Lear
Partner/Private Client Adviser
9 Feb 2016

The recent fall in commodity prices, China’s economic slowdown, US interest rate policy and slow growth prospects of the Australian economy has contributed to a lot of negative media coverage around sharemarket volatility, weighing heavily on investors’ confidence.

The above factors have led to some clients – many newer ones to Hewison Private wealth, to question, whether they should move to cash or whether now is a good time remain invested in the sharemarket.

There are understandable questions to be asked, particularly with the Australian sharemarket currently sitting at around 5,000 points, a significant fall from its 6,000 point high in April 2015.

The million dollar question everyone wants the answer to is when is it going to turnaround?

History has shown that it’s impossible to know exactly when a market will recover however, when it does, it can happen quickly. That’s why it’s not a good idea to move to cash and wait for the market to gain upward momentum before investing back in the sharemarket. By doing this you’re effectively selling an under-valued stock, then buying it back when it’s over-valued.

When global financial services firm, Morgan Stanley, analysed bear markets, it found that the MSCI index, which covers a number of developed markets and emerging markets, typically increases approximately 30 per cent over the 12 months following a decline of 17 per cent.

The below graph shows the percentage change from one week to 12 months.

Source: Morgan Stanley

The takeout from the above is not that local equities will definitely increase by 30 per cent following a sharp decline, but rather that investors should expect an eventual increase.

At Hewison Private Wealth, we consider the best way to manage volatile markets is via a diversified portfolio of quality assets. We will continue to diligently rebalance back to your portfolio’s target asset allocation, and will take advantage of opportunities as they arise. Sometimes, these opportunities may go against what might seem rational to an average investor but keep your long term goal, front of mind.

If you are a client of Hewison, you can be rest assured that your portfolio is being managed according to a long-term investment strategy. So I suggest you block out the noise and have faith in the strategy you have in place.

The information provided in the above article is general in nature and does not take into account your own specific circumstances.  You should seek the advice of an appropriately qualified professional prior to acting on any of the strategies discussed.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.