It appears that the investment world has become “immune” to so-called “investment crises”.
This is not a bad thing, as one of the main investment traits that hinders decent returns and performance, is “emotion”. Commonly it’s “fear and over-reaction” to perceived investment issues that results in such underperformance.
The current Ukraine/Russia political crisis for example has had the potential to destabilise financial markets, but thankfully it (like many crises before it) appears it has had minimal detrimental share market impact.
Since 2009 there has been close to 20 financial and geo-political events, that had investors re-acted to, would have resulted in severe investment underperformance to their personal or superannuation portfolio.
That’s 20 crises in around 60 months since the start of 2009. Put another way, it’s a brand new ‘crisis’ every three months. Over this same time period, sharemarkets (domestic and international) have defied the odds enjoying positive returns.
The crisis list since 2009 includes;
- Australian housing collapse
- China’s housing boom and collapse
- US debt ceiling
- US money printing
- European money printing
- Italian interest rates
- Spanish interest rates
- Portuguese interest rates
- Greek debt default
- Cyprus banking bailout
- Europe’s bailout plans
- Japan’s money printing
- Japan’s interest rates
- China’s interest rates
- Syria, Libya, and Egypt
- Emerging markets
- Argentina’s debt problem
- Russia and Ukraine
The importance of communicating the above is to highlight;
1) There will always be economic or political or financial issues that will make you feel nervous about investing in shares. It is for this reason, and the inherent risks involved, that you should expect a higher return on investment from this asset class (compensating for the risk premium taken on).
2) It is our job as financial and investment advisers to eliminate unnecessary investment noise (over hyped media driven investment headlines) and focus on what is “influential” to the longer term performance of investment returns and position client investment portfolios accordingly. It’s our job to keep you informed of “when” a genuine crisis has the potential to derail your investment strategy, and how best to re-act to it.
Right now we are weighing up the considerations of a slowing Chinese economy, central bank stimulus tapering, prospects of rising (global) interest rate rises and high government debt levels, all of which have the potential to negatively impact share returns. However, offsetting this is that the current investment environment of low inflation, improving global economics, and rising corporate earnings, all conducive to positive sharemarket returns.
It is unlikely that neither we nor anyone else will predict with perfect timing “when” the next crisis will have a material impact on the health of financial returns. But what we will do is continue to assess the merit of potential sustained negative implications on issues that arise and pro-actively make changes if/when needed.
Written by Adam Watts
Financial Strategist and Wealth Manager
LifeTime Financial Group.
An independently owned Melbourne based Financial Planning Group