We are constantly faced with world events that impact the growth of our investments on a daily basis. The outbreak of a direct conflict between the USA, Israel and Iran are the current event that impacts investor returns through several ways.
This “geopolitical” event tends to increase market volatility on a day-to-day basis. This then causes some investors to growth assets like shares and shift into traditional safe havens such as gold, government bonds, and the U.S. dollar. You may also be tempted to follow this action.
It is natural to have these emotions. However, we need to remind ourselves at these times:
1. When markets fall in value due to a world event, they generally bounce back soon afterwards
When news of war breaks out, uncertainty and concern rise during the conflict. But once more is known, the investment markets quickly digest the possible outcomes (e.g. in this case, possible rising inflation due to higher oil/petrol costs) and markets recover and move higher. During the decades beginning in 1990 and 2009, the markets had great positive growth and overcame various conflicts and turmoil including the final collapse of the USSR, the Bosnian War, Somali Civil War, Tokyo sarin gas attacks, and the Kosovo War involving US/NATO airstrikes, the Libyan Civil War, the 2014 Israel-Hamas conflict, Russian and US involvement in the Syrian civil war, the rise of ISIS and North Korean nuclear threats. In recent years we have seen COVID-19 and the Russian invasion of Ukraine cause market falls followed by a recovery.
2. Remember your investment time horizon and strategy and, stick to it!
Most investors have a set time horizon which is the period the investments are in the markets in order to grow. For most people, the investment time period is 10 plus year until you retire or your retirement years. Your investment strategy has been set in accordance with this and your investor profile so that you can capture the longer-term gains from investing in growth investments such as shares (both Australian and Global) and property (both commercial and infrastructure). As an investor you need to stick to your strategy and avoid making changes to your portfolio as this can be detrimental to your long-term strategy. You should only adjust your strategy if your time horizon shortens. Although market ups and downs can be unsettling, this is a normal part of investing. Remember, markets have generally grown over the long term.
3. Falling markets represent good buying opportunities.
Guru investor Warren Buffett said the market volatility is not a threat—it is an opportunity to buy quality companies at discounted prices. When short term events cause market weakness, your investment managers will use this as a buying opportunity. The BHP share price between 2 March ($A$59.25) and 4 March ($55.68) has fallen 6.0%. This represents a buying opportunity being considered by Australian investors. As a superannuation plan member, still working, now is the time to stick with your salary sacrifice contributions, or even increase these to take advantage of good market buying opportunities.
For clients with a long-term investment horizon, short-term market volatility is a distraction that is better off ignored. Your investment managers are doing the worrying for you and looking for buying opportunities. While the markets could be in for a bumpy ride over the next few months due to world and economic events, it is best to stay stich with the strategy and avoid making any major portfolio changes based on the latest headlines.
If you are wishing to discuss, please do not hesitate to contact us.
