Navigating uncertain times

Uncertain times

To many of us, these times feel as uncertain as any in the past – uncertainty breeds apprehension and anxiety. It is natural to feel this way as much is still unknown (or agreed upon by the experts) about this virus, a remedy, and the impacts to the global economy. Our civil liberties are being heavily constrained to ‘flatten the curve’ and some even worry that life may never return to normal once this current crisis is over.

What we do know:

  • Australia is weathering this health crisis well to date – at time of writing, Australia has some 6,108 known coronavirus cases with 51 deaths nationally (Johns Hopkins University). Though we must be cognisant of the compound (exponential) function that virus transmission can follow, the early signs are that Australia is well placed to avert the most extreme forecasts of loss of life due to coronavirus.
  • The Australian Government’s balance sheet is extremely strong by international standards with Net Debt to GDP of 42%. This means the Government, via the Treasury and independent Reserve Bank functions, can step in and deliver stimulus to those most severely financially impacted during this period. To date, this has included direct cash payments into people’s bank accounts and lowering cash rates to influence cheaper borrowing costs for those who have debt. Additionally, the Australian currency floats and is not fixed against any other global currency. This means that it will act as a very good shock absorber during this period as Australian assets, services and production become more attractive from an international perspective through a lower Australian dollar.
  • Markets have re-priced aggressively with the silver lining that expected long-term investment returns have increased – major asset classes ranging from Property and Infrastructure through to Australian and International shares have all re-priced downward anywhere from 15%-40% at recent troughs. All else remaining equal, these lower prices necessarily mean stronger expected long-term future returns on capital invested today.

 

Some perspective – How is the ‘average’ Australian faring compared to me?

Clients often ask us questions along the lines of “where do I sit in the overall scheme of things” – referring to how their position benchmarks against broader Australia, or a cohort they particularly align to. Our response will invariably reinforce that benchmarking to personal goals (and not someone else’s) is the key. What becomes clear through an objective assessment (and almost without exception) is our clients are strongly positioned to meet their financial and lifestyle goals.

However, it is humbling to remind ourselves of our fortunate position relative to the broader population and perspective.

 

Some sobering statistics on broader Australia and observed behaviours during this coronavirus crisis; 

  • Australians aged between 60-64 are retiring with a median superannuation balance of $154,453 for males and $122,848 for females (Australian Superannuation Funds Association figures 2019) – this figure is well short of ASFA’s stated ‘comfortable retirement goal’ of $545,000 for a single person.

 

  • Many Australians without a financial adviser (partner) often panic and switch their investments to cash, effectively tearing up their ‘wealth accumulation plan’. Industry fund Sunsuper has seen ‘overwhelming flow’ of unadvised members flocking to cash in recent weeks (Professional Planner magazine 25 March 2020). What this means in practice is that many investors have ridden the market decline down 30%+, sold their (often modest) investment net egg to cash and crystallised losses – this panicked behaviour will undoubtedly result in them missing the recovery on the way back up.

 

Unfortunately, such behaviours are entirely predictable as history has illustrated through the great depression, 1987 stock market crash and Global Financial Crisis.  More wealth was transferred from ‘weak hands’ to ‘strong hands’ (those with ample cash reserves who adhered to a disciplined plan) during these periods than at any other times in modern history.

What should I be doing right now?

Focus on your health, your family and your friends – these are without question the most important issues.

There are many in our community feeling the pinch right now – financially, emotionally and physically. Some of these individuals may be your family members or friends. Stay connected and take advantage of opportunities to assist where you are comfortable doing so.

Of course, you should remain mindful of your own long-term objectives and aspirations throughout this period and part of this process will include discussing, reviewing and adjusting your financial plan as appropriate.

We remain available via email, phone or video conferencing if you (a family member or close friend) needs to talk.

We are all in this together and collectively will overcome these challenges.  Stay well and we hope you have a restful Easter with your family close by.

Kind regards,

Sam Adams and Glen Orbell

6

Like This