The past 12-18 months may have felt like a rollercoaster for investors. In March 2020, we saw markets respond quickly to the emerging pandemic, with investors selling and markets dipping. Today, despite continued restrictions here in Australia and to varying levels, across the globe, markets have recovered, many to pre-pandemic levels.
As we enter a renewed period of market optimism, it’s a good time to discuss the lessons from the last 12 months, and make sure you are factoring them into your investment decisions.
#1 Equity markets are forward looking
Despite global economies still being in recovery mode, equity markets have largely reached pre-pandemic levels. This is because they are forward looking and always have been. They are not focused on where our economies are right now, but where they will be. Investors are positive that we are moving towards recovery, and the market has responded.
#2 Trying to time markets is hard
In 2020, we saw investors trying to pick the bottom, and now that markets have largely recovered, we are seeing many investors try to pick the top. This is an incredibly challenging game. Even the most experienced professionals can’t accurately identify when markets have bottomed or peaked.
Many investors are wondering whether it is a good time to sell, but the answer to that is more about your circumstances and goals than the market. If you are a trader looking to make quick wins, then potentially it is the right time for some assets, but if you are an investor looking to accumulate wealth and grow your portfolio, you should remain focused on your long-term goals.
#3 The current interest rate environment and Central Bank policies need to be factored in when assessing asset valuations
While long-term bond yields set by the market are a key driver of market movements, short-term interest rates still have an impact. As long-term bond yields increase, there is some speculation that Central Bank monetary policy is no longer playing a role in equity markets.
However, long-term bond yields, just like equity markets, reflect expectations rather than the current situation. With growing speculation that the Central Banks will lift interest rates, we are seeing long-term bond yield rise. Much of this speculation centres around the idea that Central Banks can’t go any further with quantitative easing. While the tools available for Central Banks to utilise has narrowed, Central Banks will take all the necessary actions required to support economies.
If this speculation is wrong and Central Banks keep interest rates low, long-term bond yields will simply readjust. While interest rates remain low, this will continue to support current asset valuations.
#4 Block out the noise and stay focused on long term investing
With a 24-hour news cycle and so many of us living under restrictions, it’s incredibly easy to get caught up in the noise and feel like you need to make investment moves in response. However, it is important to remember that much of the news is emotional, and your investment strategy simply shouldn’t be.
In a busy news cycle, you can be bombarded with articles on the next big thing in tech or cryptocurrency and ‘fear of missing out’ is not unusual. That’s where it really pays to have a clear, long-term investment strategy that you can go back to, making sure your moves are in your best interests long-term and not simply knee-jerk reactions to the latest market news.
If you are considering making market moves in 2021, make sure you talk to your Apt Adviser first. They are here to make sure you continue to make the right moves that align with your values, goals, and long-term plans. If you aren’t an Apt client, get in touch with our team to find out how we can support you to live for today while planning for tomorrow.
General Advice warning
The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.
