A video update from Rhys Phillips (Director and Senior Financial Adviser) discussing the recent market volatility and how Strategy First's Investment Philosophy equips us to deal with it.
Transcript:
Hello everyone. For those of you that don't know me, my name is Rhys Phillips. I am one of the directors and responsible managers here at Strategy First, and I'm going to share some thoughts with you today on the current market environment, particularly the volatility that we have been seeing recently, no doubt you're all aware of it.
You will have heard all the news reports, the scary sounding news reports about hundreds of billions of dollars of value wiped off share markets in recent days, combined with talk of trade wars and tariffs, and a whole bunch of scary sounding things, so what I'm going to do today is try and provide a bit of context for that, and also give you some reassurance that if you maintain your focus, (Strategy First is here to help), we will get you through this, much like we have previous market corrections in the past, and we'll get you out of the other side.
Let's start today, though, with a bit of context. So, what I have on screen here, a chart showing the Australian share market in blue, and the US share market in pink. And this first chart shows performance of those two markets over the last six months. Right at the end here, you can see these very steep drops, this is what we've been hearing about in the news in the last couple of days, and it's bringing the total portfolio to performance down to minus 9, minus 12 percent, very, very scary in a short period of time.
However, context is really, really important here. If I skip to my next slide, this shows exactly the same two set of market indices, but over a 12-month period. And what you can see on this one is that, while the journey's certainly been bumpy along the way, when put into a context of a slightly longer time period, these downfalls still look scary, but they're nowhere near as severe. We're already at minus 2 and minus 5 compared to easily double those numbers on the previous slide.
Take it out a little bit further, and this is a 5-year chart, by the way, look at the difference it makes. Still see big drops at the end, but over that 5-year journey, the US market is still up 80 plus percent and the Australian market is up 37. That's pretty significant.
One final one for you. Same thing again, 10 years this time. So, you can see the COVID drop here along the way. Big drops at the end, but let's put that in context. The American market is still up 145 percent from where it was 10 years ago. Big, big numbers. So, context is important here, everybody. Yes, we have seen some drops in recent times, but when you put it in the bigger picture context, it's not quite as scary as the media would have you believe.
Second thing to think about is, we've been taking the right actions along the way. Most of you who've been listening to your advisors here at Strategy First will know this by now. As the market has been rising over the last few years, we have been gradually rebalancing your portfolio using strategic asset allocation, and we've been taking profits while this upswing has occurred.
Likewise, now, when we are seeing this market correction, we aren't going to panic, we aren't going to sell any shares, and in fact, for most of you, we will slowly rebalance back into the market as the market continues to fall.
This is exactly what we were doing in COVID, and if you look back here at the COVID drop, I'm sure most of you can remember what COVID felt like. That significant drop that we saw in March 2020 was terrifying at the time that it was occurring, but markets recovered pretty quickly, I'm not suggesting they'll do the same thing this time in terms of the speed of the recovery, but they will certainly recover. And when you now look at COVID and you put it in a 10-year context, that drop there doesn't look as scary as it felt when we were in the thick of it. The same thing is going to be true here. Now, I'm not predicting that this crash, or this bear market will look exactly the same way as COVID, I don't think it will. But what matters here is that this isn't actually anything new. A different cause for it this time, but markets go up, we get our reward, the risk we take is that markets will eventually take a downturn, and that's kind of what we're seeing the beginnings of now.
We don't know where this is going to go, we don't know how far the market's going to fall, we don't know how long it's going to take. What we do know is that trying to act based on thoughts about the future, or what the news headlines say, is a surefire way of destroying portfolio value.
To use an example, to show you what I mean, this chart here presents to you what would have happened to your money if you had tried to cash out and time the market and missed the best weeks’ worth of trading days, the best month, best three months, and the best six months.
You can see a pretty significant drop in value for all of those missed good days of trading. Nobody knows when they're going to occur, by the way, and in fact, if you look at the bottom here, most of those best trading weeks occur very shortly after a significant crash. So, GFC there, COVID there, more COVID here. That’s the time when it feels the scariest. Cashing out there would have cost you big time.
Another chart that tells you a similar thing here. If you do panic and go to cash, which is the opposite of what we are recommending right now, the longer you stay in cash, the greater your chance of underperforming the market, and by a significantly larger amount over time.
So, that's the downside of panicking, which we're not suggesting you are doing, in fact, our structure and our advice model is designed to help you not panic in a time like this, to tune out the noise and to focus on more of the bigger picture stuff.
What we do instead is important. We have what we call a strategic asset allocation. So, for all of you strategy-first clients with portfolios with us, we manage these on a long-term time frame, we have an asset allocation that is closely linked to your risk profile and that we know is going to be appropriate for you through market cycles. On a relatively regular basis, we rebalance your portfolio to that asset allocation. No more. We don't try and guess what is going to happen in the market, we simply act based on what has happened. That has been proven to provide much, much, much better results than trying to guess what is going to happen. That's reflected in this chart. The yellow bars here show a portfolio like ours that is just rebalanced to a strategic asset allocation on a regular basis, the red and the blue lines show portfolios, and these are real industry numbers by the way, they show portfolios that have tried to be tactically rebalanced. It doesn't work. Not because the people trying to do this aren't intelligent, but because they don't know what's going to happen in the future.
Which reinforces the strategy-first approach of stick to your long-term plans, focus on what you can control, and short-term market volatility certainly doesn't fit into that category. Bear in mind that most of your portfolios, by the way, are not 100% linked to share markets, we do have a lot of diversification in our portfolios, including fixed interest, which gives you a buffer against the kind of market volatility we're seeing here today, but the focus on the long-term is key.
And this final chart that I'm going to show you, I think, emphasizes that quite nicely. This is a new way of looking at markets, or it's been changed to give it visual impact. The green shaded sections are bull markets, when the market is going well, and the goldy brown colours on the bottom are bear markets, when the market has had a more than 20% correction. Now you can see, there have been a number of them over the years, but what you can obviously see from this chart is that the bull markets, the good times, far, far, far outweigh the down times. The down times feel scary when we're in the middle of them, but if we're in the game long enough, time in the market (as opposed to trying to time the market), provides significant value for your portfolios.
That is what Strategy First is about, that is what we are strongly encouraging you to do at the moment and possibly for the next few weeks and months while this all unplays around us.
Stay focused on what you can control. Your objectives, the long-term plan that you've got, and regularly rebalancing your portfolios that we will help you do. Outside of that, there is no point trying to time the market in the short-term. Strategy First is certainly not going to, because we know that if we do focus on that long-term, we're going to give you a much, much better outcome.
Now, needless to say, despite having watched this video, the coming days and weeks may seem scary or nerve-wracking, which is completely normal. So, if you have any questions at all, please don't hesitate to get in touch with your advisor here at Strategy First.