Raffi PailagianMBA, BSc, DipFP
Adviser / Managing Partner
The current market performance seems counter intuitive to the majority of personal investors, and this vLog attempts to answer their questions around what’s driving the current market performance.
(00:00): Today, I want to talk about the current investment markets and how you can navigate these interesting and uncertain times, especially if you’re looking to generate investment income from your portfolio.
(00:17): Investment markets over the last few months have been very interesting. Everything we’ve been expecting in relation to the market response, to the economic weakness, both in Australia and abroad, has just not materialized. Investment markets are performing very strongly and really against most people’s expectation.
(00:35): The US market, the S&P 500 over the last six months to the end of October is up 13.3%. And the technology stocks listed under the NASDAQ Composite Index are up 23.3% over the last six months to October.
(00:49): Now, the rest of the world is going along as well, with the Japanese index, the Nikkei, up 13.8% over the last six months, and the Australian markets in the ASX 200, up 8.7% in the last six months.
(01:03): But in amongst all this, if you actually look at what’s happening economically, if you look at what’s happening socially, we’ve seen lockdowns in Europe in their phase two of COVID that they’re trying to deal with. We’ve seen a recent lockdown in Melbourne, in Australia, being lifted, which has really affected the economy and expected to affect the economy going forward.
(01:25): We’re all projecting increased unemployment rates due to these COVID lockdowns. Increased unemployment means low consumer spending, it means business closures, which are low business investment numbers, and that doesn’t bode well for a growing global economy.
(01:48): So what’s driving investment markets in this time, when the backdrop of the economy and unemployment doesn’t look so great on a global scale? Well, it has to be low interest rates.
(01:58): Interest rates across the globe are at record low levels. We’ve seen a recent reduction in Australia and it’s taken us to a record low interest rate where people can borrow at, in order to invest, in order to consume and grow and develop their businesses.
(02:16): We’re also seeing central banks around the world, such as the Australia’s Reserve Bank, following a money printing or quantitative easing policy, where they’re flushing the economy with more money, money that can be borrowed at low rates and invested for further economic growth.
(02:31): The third element that seems to be driving markets is the hopes of a vaccine. With recent report we received over the last couple of weeks around a promising Pfizer vaccine, which just adds to the list of some of the other vaccines that are progressing quite well through trials.
(02:49): So what do we do if we’re looking to generate income within the portfolio, if we’re looking to retire, or retired at this point in time?
(02:57): Well, you’ve got to look across all the asset classes. Across our defensive asset classes, such as fixed interest and cash, interest rates are extremely low. So our clients aren’t really able to generate an acceptable return from term deposits, bonds, or cash in those asset classes.
(03:12): Property’s also a bit of a problematic one as we’ve seen residential or commercial property rents fall in relation to some of the economic effects of COVID-19. Listed property stocks, however, in certain sectors, are yielding decent returns. And this is an area that we have been looking at.
(03:32): We have also been searching for yield in defensive blue-chip Australian shares and that again is an area where you can look for yield and tax-effective yield. It’s important, however, to be very careful when you’re chasing yield, because you could easily be in a scenario where you’re fully invested in growth assets without much in the defensive asset classes.
(03:51): If we have a market shock, the capital value of those growth assets will fall. So diversification across both growth and defensive assets, as well as within asset classes, is key, in addition to knowing exactly what type of assets you’re buying within a particular asset class.
(04:12): So that begs the question, how can you protect yourself in these uncertain markets? It’s really important at this time to gain some advice in this area.
(04:21): Many investors in the past have been self-directed investors, or many clients no longer have their financial advisors, as we’ve seen quite a large exit of advisors or financial planners from the financial planning industry over the last 12 months.
(04:37): It’s really important to sit down with an advisor and get some really good advice in relation to your risk tolerance, in relation to your timeframe for investment, and in relation to your needs and objectives, because we can easily just allocate funds to a growth asset to be able to generate an income.
(04:53): But if we’re doing that and we have a short timeframe, or we have a low risk tolerance, then we’re basically setting ourselves up for failure.
(05:02): I hope this video is of benefit in explaining what we believe is driving investment markets in these difficult times and ways in which you can allocate your portfolio to generate income in these dynamic markets.
(05:14): Please like to subscribe and please click the notification bell so you’ll receive a notification when we release more content and lastly, please visit our website at manlyfs.com.au if you’d like some more information.
(05:26): Give us a call or send us an email if you’d like to be connected with one of our helpful advisors. Thank you.
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