World events and your retirement nest egg

Thursday, February 24, 2022

It can be helpful to observe, that the response of investment markets to world events, reveals a pattern. This can be used as a basis for your retirement investment strategy.

Over the past 120 years we have experienced various world crises that have impacted the share markets. Significant events in history have included world wars, terrorist attacks, the global financial crisis (GFC), USA vs China trade wars etc.

It can be helpful to observe, that the response of investment markets to world events, reveals a similar pattern.  There is generally an immediate sharp decline in the share market followed by a recovery. Since the events of WW2 the averages have shown: an initial decline of about six percent, then six months later up nine percent.  And then approximately a year later the markets have recovered by 15%.

How should investors consider global events in regard to their investments?

Uncertainty in the markets is always going to translate to share price volatility, albeit short term. A view to long term is the best strategy when approaching share market investing. In addition, traditionally shares have provided higher long term returns than other more stable assets. Certainly with a retirement investment strategy it is vital to be invested according to your tolerance to risk so you are comfortable with any market upheavels, and also with a view to the phase of retirement you are actually in – pre, post, or many years down the track of retirement.

Beneficial to this is being under the advice of an experienced Financial Adviser with their finger on the pulse of your personal retirement situation, together with current market responses and expert views. Fear and uncertainty makes good media but doesn’t necessarily reflect the truth or any required action. 

Moving out of investments at the bottom of the market is never a good strategy and attempting to time the markets is a fool’s game. However, a portfolio that is well invested can actually offer opportunities during downturns for Fund Managers to jump in and take advantage of any low priced yet solid stock options.  

In addition, it is good to keep in mind that although share values may have fallen, dividends from the market usually haven’t. Dividends never go up as much as earnings in the good times and so rarely fall as much in the bad times. This means that income is being paid into your portfolio and can be reinvested into any worthwhile low priced stock options.

No-one has a crystal ball, however even the most recent world crisis of COVID lead to tremendous immediate losses and then a subsequent strong recovery. We mentioned in last month’s article that the MSCI World Index showed a 21% gain in the 2021 calendar year.

Moral of the story is that investment markets are sensitive to uncertainty, however that does not need to translate to personal uncertainty within a solid long-term investment plan for your retirement. 

For more Information contact Mark Digby at Maher Digby Securities Pty  Ltd - Financial Advisers – AFSL No. 230559 – Ph: 075441 1266.  This document was prepared without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such.  Maher Digby Securities does not accept any responsibility for the opinions, comments, forward looking statements, and analysis contained in this document, all of which are intended to be of a general nature. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend consulting a financial advisor