The first week of August 2011 saw equity markets drop sharply.  Most global equity markets (including Australia’s) were down by between 5% and 10%.  The Australian share market is currently trading at the same price level as it was in July 2009.  However, since this time the All Ordinaries Accumulation Index is still up over 10% from dividend payments.

Why are Equity Markets falling?

The main issues weighing on markets have been the sovereign debt issues of Europe and the US.  However, last week the additional fear coming into play was that global Government budget spending cuts  anticipated in the next few years, may slow world economic growth from the current anticipated 2.5-3.5% pa, to maybe as low as 0-1% growth. The current equity market falls are driven by emotion and the fear that there may be a double dip global economic recession.

What should Investors do?

In uncertain times, it is important to remember the basics of investing:

  • to have a diversified approach with reasonable components of local and overseas shares, local and overseas fixed interest, property and cash,
  • with growth type assets (i.e. shares and property), it’s important that these reflect your time horizon and your personal tolerance to risk,
  • that it is time in the market rather than timing the market that has been historically proven to lead to higher returns over the long term.

For investors with equity exposure who are investing for the medium to long term (i.e. 3 years +) and do not require access to these funds in the short term (i.e. less than one year) it is important not to panic or crystalise any recent unrealised losses.

If you have any concerns or would like to discuss your current investments, please call one of our Principals or email Harvest.  Contact Harvest