Look beyond the day to day

08 April 2020 | Investment principles

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Focusing on the long-term can be difficult when the here and now is demanding your full attention.

Saturation media coverage - whether it be on mainstream media or on your chosen social media platforms – makes it hard to tune out what have so far been largely negative messages.

Such is the reality of a global health crisis.

While money and investment markets come second to health fears daily gyrations in investment markets can add another level to the stress of dealing with COVID-19 risk, social distancing, working from home or simply finding essential supplies at the local supermarket.

But as some sense of normality returns naturally people will begin tuning into their portfolios and super account balances. Normally paying attention to your investment portfolio is good advice. In situations like this – and the global financial crisis back in 2008 - the reality is that the best advice may well be to not look right now but rather try to focus on the longer term perspective.

A valuable source of perspective – in my view at least – comes from a US financial planner and New York columnist and author Carl Richards. He is a Certified Financial Planner but probably better known for his Sketch Guy column in the New York Times because he has the gift of being able to translate complex money problems in simple sketches.

In his weekly contribution last week he contrasted the free hand sketch of five days of market movements – imagine lots of up and down squiggles - with the long-term trend line of stock market performance over decades.

The simple message is do you want to focus on Days or Decades? You can find it here at his website behaviorgap.com.

It is a simple but powerful reminder of the need to look beyond the day to day – as confronting as it may seem – and focus on the longer term view.

What is encouraging is what Vanguard is seeing through investor behaviours both over the past month of March and for longer timeframes.

Looking at Vanguard's range of retail and wholesale funds and ETFs there has been positive net cashflow for March with the majority of investors buying into equity markets. The outflows have been in the fixed income category which suggests investors are funding their shift into equities by rebalancing out of fixed income – which has largely done its defensive job.

Similar behaviour has been seen in Vanguard's US business.

Since the high levels of volatility began in late February, between 62 per cent and 79 per cent of Vanguard US households who moved money on a given day went into equities. The share of households moving into bonds ranged from 18 per cent to 34 per cent over the same period.

Trying to time markets – particularly when you are trying to judge the bottom – is nigh on impossible. One strategy for volatile times that helps overcome the feelings of inertia is to dollar cost average or spread your investments over several weeks or months until you get to your target asset allocation. It is a way to spread the risk because you will end up with a range of entry prices.

 

Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.
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Robin Bowerman, Head of Corporate Affairs at Vanguard Australia, shares investment and personal finance insights gained from over two decades in the finance industry as writer, commentator and editor.

Robin Bowerman

Robin Bowerman