Over the last fortnight, the rapid spread of COVID-19 has had a significant impact on every area of our lives.
Australians are closely following the effects of the pandemic on financial markets and the investment landscape.
Alex Fisher, Australian Unity Portfolio Manager has shared his insights into the impacts of the COVID-19 pandemic on Australian markets in this video.
These are uncertain times, and investor anxiety is at an all-time high, making investment decisions challenging.
Understanding investor emotion
We are aware that emotion plays a significant part in the swing in investment markets. The chart below shows the incredible rollercoaster of emotion over the course of an investment cycle.
Source: Russell Investments: The Market Cycle of Emotions
Feeling worried or anxious about your investments during this time is normal. What we need to remember is that this time will pass, just as challenging periods have passed in decades gone by.
What we know
Over the last century the global economy has faced many challenging times including war, recession and the GFC. Despite these setbacks we’ve bounced back with Australian shares returning 11.8% per annum since 1900*.
Source: FactSet, NBER, Robert Shiller, J.P. Morgan Asset Management. Data shown in log scale to best illustrate long-term index patterns.
While it’s difficult to predict the timing and shape of the recovery from the COVID-19 pandemic, we need to remember that the basic principles of successful investment have not changed, and we must continue to look ahead.
The power of compounding
Compound interest is a fundamental component of wealth creation.
The graph on screen shows the value of $1 invested in various Australian assets in 1900, allowing for the reinvestment of dividends and interest. If invested in Cash the $1 would have grown to $234; bonds $866; as compared to, Australian shares where it would have grown to $529,293.
Source: Global Financial Data, AMP Capital
To grow wealth, we must have exposure to growth assets like shares and property. While share prices have fallen in recent weeks amid the COVID-19 uncertainty and property prices may also drop, the outlook for both is positive in the long-term.
We will recover from the COVID-19 pandemic as we have recovered from investment market challenges on numerous occasions over the last century. Further market swings are anticipated in the coming weeks so it’s important that we remember to focus on the long-term, not the short-term.
Things to remember
- This time will pass
- Feeling anxious and worried is normal
- Focus on the long-term, not the short term
- Talk to a financial adviser if you have questions
Would you like financial advice?
Contact us to speak with a professional, licensed financial adviser.