Categories: Financial Planning & Advice Wealth Management

Coronavirus – Managing Your Portfolio in Times of Financial Crisis

Posted on: 16/03/2020

Raffi Pailagian
MBA, BSc, DipFP
Financial Planner / Managing Partner

Categories: Financial Planning & Advice Wealth Management

5 Step Strategy To Managing Your Portfolio In Times of Financial Crisis

(00:09) Hi, it’s Raffi from Manly Financial Services. By now I’m sure you’re sick of all the coronavirus updates. We’re seeing share markets around the world just plummeting over the last week, with the Australian share market, the ASX 200 down over 20% taking this back to 2017 levels. We’re also seeing the Dow Jones, the US market falling again over 20%, effectively wiping out all the last year’s gains. We’re seeing incidents rates across the world increase and I think we’re only going to see more of an increase in Australia as the next few weeks progress and our day to day lives will be disrupted. From a financial perspective, this disruption will lead to an economic downturn and possibly a technical recession in Australia as many commentators are predicting.

(00:52) You can say central banks and governments all around the world announcing, actively announcing measures to try to counteract this economic downturn, try to get their economies going again. On this blog, I’d love to explain five things that we can do to reduce the effects of this market correction on our portfolios, our super funds, our retirement savings and our pensions. There are probably more than five things that can be done, but these are the five issues that I think should be front of mind.

Step 1 – Take A Long Term View – But Be Mindful Of Short Term Trends

(01:20) The first point is to take a longterm view on our portfolios, but to also be conscious of short term trends. It’s important to take a longterm view because we have to see how the portfolio is progressing towards our goals and our objectives, whether their retirement goals, whether it’s saving to purchase a home or go on a holiday or whatever it may be. So it’s really important to be able to step back and have a look at where the portfolio is compared to what our particular target is, whether that’s in three years, five years, seven, 10 or more years. But it’s really also important to be conscious of short term trends. So if we think that global growth is going to be weak due to a global recession or an economic downturn, we really don’t want to be in investments that will leverage to global growth.

Step 2 – Make Sure Your Strategy Works In Volatile Markets

(02:07) The second step is much more strategic and it’s really in those scenarios where we are requiring income from our portfolios, whether they’re retirement portfolios or investment portfolios, to fund any expenses, financial commitments, retirement income or whatever it might be. We’ve got to ensure that that income that we’re generating and potentially living off of or having to fund out our ongoing expenditure is coming from defensive assets or from the yield of the particular portfolio. The last thing we want to be doing is having to sell down shares that are falling in value in these types of markets.

Step 3 – Are You Holding Good Quality Investments?

(02:45) The third step is really to look at our portfolios and look within the managed funds that we hold or the direct securities we hold, ensure that we have got good quality businesses that will stand out in an economic downturn. During an economic downturn, people are still going to go to the supermarket, they’re still going to use their banks, they’re going to be using healthcare services, telecommunication services. It’s really important during an economic downturn to ensure that the assets that we hold within our portfolio is still going to be profitable businesses.

Step 4 – Active vs Index Managers In Volatile Markets

(03:15) Fourth point really addresses the use of active managers within our portfolio if we’re using managed funds. Over the last five to 10 years, the index funds, exchange traded funds, those funds and assets that just are exposed to the index have become very popular and they’ve become very popular because they’re an easy way to invest and they’re a very cost effective way to invest. It’s been a no-brainer being invested in those assets because as the indexes in the Australian share market, the international share market, the property market, indexes have been going up. This value of the securities have also been going up.

(03:49) However, in a dynamic market where markets are quite volatile, it’s very important to be looking at investing with active managers. An active manager will look at their portfolio and ensure that it’s positioned in such a way that it can withstand a downturn by buying more defensive holdings. An active manager will also look to exit the market and hold cash. Whereas, an index holding is purely going to be fully invested within that index, which means that the investor is going to get the ups and at the moment the downs of that particular index.

Step 5 – Buy Low!

(04:27) The fifth step is really to look to continue to buy in these markets. After the GFC, a lot of investors were hesitant in terms of re-entering the market. We were all too scared. We were all too worried after the effects of that GFC to be able to buy back into the market. What if the market at that point wasn’t the bottom and there was further to go? We don’t want to be caught up in this same sort of scenario in this case, but it’s very important to get some good advice and to get an advisor that helps you enter the market because over the next five to 10 years, as those assets appreciate in value, we’re going to be in a much better position.

(05:05) These are only five amongst many actions that an investor can take in these dynamic markets. But the most important thing is not to panic, but also gain advice from a professional that’s gone through these cycles before and can help you navigate these particular markets. If you’d like some help from us, please visit our website at manlyfs.com.au and give us a call and let’s arrange a time that we can sit down, chat through the current environment, get a clear understanding of your goals and objectives, and help you get there through these dynamic and troubled markets.

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