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Blog | Is the market going to crash?

Glenn Fairbairn
Director/Private Client Adviser
14 Aug 2019

I hate to disappoint you all but unfortunately, my short answer to this question is, I have no idea. Trying to pick the movement of markets in the short term is like trying to predict Melbourne’s weather. It is near on impossible.

I would caution you against reacting to any short-term market prediction. Often these predictions are pure speculation and end up being wrong. It wasn’t too long ago that markets were in panic mode due to fear of a trade war between the US and China.

From August 2018 to December 2018 the ASX 200 fell around 13% as investors were overtaken by fear. However, some 12 months later, the ASX 200 is almost 5% higher than it was in August 2018 and has increased by almost 20% from its December low.

Over the last few years, the trade war is not the only event that has sparked fear for investors. There have been tensions in North Korea, Brexit, Federal Election, slowing growth in China, contraction in house prices, and the list goes on. Each of these has resulted in a market downturn followed by a swift recovery.

So why not sell out temporarily and get back in when things look better?  If market timing was so simple, I probably wouldn’t be here writing this blog, but get it wrong and your investment returns could suffer substantially.

Looking back over the 20-year period from January 1, 1999, to December 31, 2018, if you missed the top 10 best days in the stock market, your overall return was cut in half. J.P. Morgan Asset Management’s 2019 Retirement Guide shows the impact that pulling out of the market has on a portfolio.

The return went from positive to negative by missing the 20 best days of the market over 20 years. Similar results were also observed from 2003 to 2018.

If you were fully invested in the S&P 500, your annualized total return was 7.7% during that time. But if you missed the 10 best days in the market, it dropped to 2.65%.

Although these results are focusing on the US market; rest assured the same pattern emerges in Australia.

The key to any long-term strategy is never being in a position where you are forced to sell. This enables you to ride through the short-term volatility of a market and remain invested. History shows that time in the market is one of the only sure ways to safeguard a successful investment strategy. Furthermore, a diversified investment portfolio with exposure to other assets classes such as cash and fixed interest might even enable you to take advantage of other people’s fear and pick up some great opportunities when markets are down.

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.