2022 was the toughest year I have seen since starting in 2007. Unfortunately, through every cycle there is a clear out of the speculative assets which can blow back on the more robust ones. I feel for you as investors, particularly newer investors. However, this is the 4th significant downturn I have seen as an independent advisor. The worst was the Global Financial Crisis, and I learned some lessons through that, and some of the feedback would be:
- This particular correction is not displaying the stresses of the 2008 Financial Crisis. In that time banks were falling over all around the world and there was talk of paralysis in global financial markets. Financial institutions are more robust this time around both locally and internationally.
- Some history will repeat. I can see a number of investments over the last few years that mirror some of the finance companies from 2007-2009.
Particularly property investments linked to property developments have a level of risk that may not be understood, and you simply must get independent advice. I would not be surprised to see a few of these come under some serious pressure due to house prices coming down and costs going up this year. If there is a rush for the exit in some of those investments, not everyone will be able to get out.
None of your investments through us are in these style of property investments.
- You’ve done it tough, but you still have your funds, the price has fallen back but at least it is still able to recover. In 2008 people lost all their capital and had no chance of getting it back when finance companies folded.
I was an analyst at a large corporate in 2007 and saw the pain of what non-diversified property investments and finance companies caused. I also saw how easy it was to take that catastrophic loss off the table and have done so with my advice since I started out. Whilst not perfect, (and no investment is), that was the toughest run in a number of decades and you have the chance to recover.
- Looking ahead, funds bounced back long before the real-world economy did. Even now it has been a strong start to the year for your funds.
With interest rates being higher, the expected returns of your funds are also higher. This is particularly true for bonds in your portfolio. Bonds perform two tasks, to hedge against significant sharemarket correction and to supply regular income. Last year they failed at both really. They are now positioned in this more traditional role and the interest yield from the bond portfolio rising from 1-3% to 5-7%. This should generate a stronger income return this year than the previous 4-5 years.
There are still a lot of unknowns for the year ahead, war, inflation, interest rates and their impact, but your funds themselves are positioned well to capitalise on any recovery or return to normal.
As ever, diversification, discipline and sticking to your agreed plan, with regular balancing, is still the best course to navigate most market conditions