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Time horizon key to withstanding market turmoil

Anthony Doyle
Sarah Kendell
26 September 2019 — 1 minute read

Despite the wave of geopolitical uncertainty hanging over sharemarkets and the global economy, it’s important for SMSF investors to not act out these anxieties on their investment portfolio, given there is almost no probability of a negative return for those with a medium- to long-term investment horizon, according to Fidelity International.

The investment manager’s global cross asset investment specialist, Anthony Doyle, told SMSF Adviser that while it was easy for investors to get caught up in the “noise” of world events such as the US–China trade war and Brexit, practical tools such as diversification and a longer time horizon were the SMSF trustee’s best weapons against sharemarket volatility.

“When you are thinking about the short-term, tactical, 12-month outlook, it’s difficult to ensure against grey swan-type events like the trade war and heightened uncertainty around Brexit — how do you invest for that?” Mr Doyle said.

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“The best defence and offence for an SMSF investor is diversification and harvesting the benefits of that, not only within an asset class — so owning different sectors in the equity market, for example, and different regions with different growth drivers — but also diversification across different asset classes like bonds, fixed income, property and cash.”

Mr Doyle said a medium- to long-term time horizon was also important, pointing to a Bloomberg research which revealed an investment in the All Ordinaries Accumulation Index would have yielded a positive return in more than 90 per cent of cases for those that held the investment for three years or more.

“Often investors sell at the lows and buy back in at the highs when behavioural tendencies are euphoric again, but the research shows that since 1987, if you have a three-year investment in the Aussie stock market, on the rolling three-year periods 91 per cent of the occasions you made a positive return,” he said.

“If you invest for a day, there’s a 54 per cent probability the stock market is up, but if you invest for 10 years or more, there was no period that an investor experienced a negative return.”

Moreover, Mr Doyle said despite volatility and negative headlines around world events, the sharemarket had delivered for investors over 2019 so far.

“Equity markets globally are up around 20 to 25 per cent, so the equity markets are pricing in lower interest rates, which improves the discount rate by which you value future earnings,” he said.

“With all this tension, uncertainty and geopolitical events, the equity market has still had an excellent year in terms of performance.”

Time horizon key to withstanding market turmoil
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