Investing Insights: Flying above the danger zone

Below is our latest correspondence to clients. When there are big moves in markets,we communicate to clients proactively so they have the confidence they are best positioned.

Hi,

You will probably have noticed the market falls over the past few days. Well, if you haven’t, we at Quantum Financial certainly have!  There are a few important things we’d like you to note about the market volatility:

  • This is in line with our expectations for a more volatile outlook for 2019 into 2020 – these market gyrations don’t surprise us.
  • We have literally just finished our latest Investing Insights report for you titled ‘Flying above the danger zone’ and the views in the attached report reflect our latest outlook. Nothing that has happened over the past two days in markets changes our views. If anything, they reinforce our view that a more defensive posture is the appropriate strategy for you. So the timing of our report for you could not be better!

You will receive a personalised physical copy of the report in the mail (tailored to your portfolio) over the next week or so but we thought it was important to share with you our latest views in light of the news headlines the market falls will generate.

We re-iterate the more defensive portfolio posture we have held over the past 12 months. There are two benefits to this approach:

    • When markets falls, you can sleep well knowing that while your portfolio will likely fall in value, it will not fall by nearly as much. You are protected against the extreme swings because of the more defensive posture we have deliberately adopted.
    • Perversely, we want markets to fall more. If they fall, then the additional funds we have held in defensive assets can be used to re-invest back into markets at lower rates. Yes, we know it feels uncomfortable when markets are falling, but as long as you are in high quality assets (which you are), they will rebound in value and it provides a great buying opportunity for the funds we have ready and waiting to re-invest.

If you’re worried or have questions, we’d encourage you to first read our report and then let us know what questions you have or any concerns you may have. We’d love to hear from you!

You may be wondering ‘Should I sell everything?’ This is a natural reaction but is not always the correct one. Again, there are a couple of things to be aware of:

    • No one can reliably time the tops and bottoms of markets except in the rear window (ie after they have happened). Trying to do so (sell everything and then wait to reinvest) invariably means you get it wrong and miss out on material market gains (either by selling too early or selling after the market has begun its eventual recovery). If you play this game, you end up chasing your own tail.
    • If you’d have adopted this approach in January 2019 (when many of our clients suggested doing), then you would have missed out on material gains over the past months. While today’s falls may feel huge, it is likely we will have subsequent market rebounds as the market gyrates one way and then the other.
    • You would also miss out on income (yield) return from dividends and lock yourself into much lower, paltry income returns from bank accounts and term deposits (yielding in some cases less than inflation).

We think our client portfolios with a deliberate higher allocation to defensive assets are well positioned to weather any coming potential storms.

Please find attached the 16th edition of Investing Insights ‘Flying above the danger zone’, our market outlook for 2019/20. We encourage clients to use an increased allocation to defensive assets as a way to partially weather the likely coming storm. Like Maverick in the movie Top Gun, we cannot completely avoid the coming turbulence but we can try to fly a bit above it.  Many of the same concerns we had 12 months ago remain and markets are even more fully priced than they were then. We worry a lot more now.

If you haven’t got time to read (it’s a lot to read in one go!), here’s a quick executive summary:

We examine the two key market pivots of the past 12 months; we explain why Australia is stuck in the middle with you; we ask how low can interest rates go?; we look at 28 European nations all singing from 28 different hymn sheets; we outline the new British Prime Minister, Boris Johnson’s, approach of “Oh **UK, see EU later”; ask how long can the US bull market rage against the dying of the light; we accept that low current yields ‘suck’ but is price we pay for safety; we examine Donald Trump’s tweets and seek good advice from Taylor Swift. Finally, bubble wrap your portfolio in 2019/20 – we re-iterate our more defensive outlook for the next 6 to 12 months!

This report forms part of our proprietary, award winning investment research approach at Quantum Financial. We are proud to share this report with wonderful clients and friends.  If you have any feedback on the report, we’d love to hear it. Feel free to forward it to anyone you think may find it interesting.

If you have any questions, please let us know.

Quantum Financial Investing Insights Research SMSF

Claire Mackay

About Claire Mackay

I am a financial planner, SMSF expert and company director. I thrive on providing independent, expert financial advice to my wonderful clients. I was recognised as Financial Planner of the Year 2015 and Investment Adviser of the Year 2014. My website is here

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