Bruce Brammall, The West Australian,15 June, 2019
How good am I? I predicted this! A short, sharp correction, bouncing back fast and furiously. Call me Nostradamous!
No, I didn’t predict squat. I didn’t see the ASX200 dipping below 4600 points. And I certainly didn’t predict the 32 per cent bounceback above 6100. Certainly not both happening inside four months.
And that’s because I don’t do predictions. And I pay no attention to those who do.
Maybe a few prognosticators got close. As they say, even a broken clock is right twice a day. And economists have predicted 67 of the last three recessions. Okay, let’s now make that four recessions.
But for the plunge late last week , a “moderate” or “balanced” investor was down about 3-4 per cent, year to date. For the year!
Markets now appear to have started correcting again, on fears of a second wave of the virus potentially sweeping through the US. Some hold grave fears for later in the year, if China really ramps up a trade war with the US (and Australia).
Was the bounce in stock markets after March 23 a bit of “irrational exuberance”, that is, just another bubble? Is it time to panic sell again? Or are we getting a second bite at the cherry of discounted stocks.
Have you been sitting on the sidelines, waiting for a sign? Did you miss the boat? Or is a second opportunity now presenting itself?
I don’t know. As I said, I don’t do stock market predictions.
Let’s get something straight. Anyone who invests in stock and property markets short term either needs to really know what they’re doing, or have some serious cohunas.
They are high-risk assets. Multiply that by 10 this year.
While I think predicting markets is crazy stuff, I do know a few things. I know the long-term averages. And I know long-term investors will generally be rewarded.
So, if you’ve been wanting to invest, but waiting, paralysed by fear or inertia, what do you do now?
It’s really simple. You start to invest. Now.
The most important element of successful investing is not actually trying to buy the bottom, or sell the top. (While awesome if you can, it will generally be luck.)
Far more important is to understand that investing is a lifelong habit. It’s not about picking the winner of race four.
Invest, regularly. Patience.
Plan to invest some now – you’ll still be investing a long way from the top of the market. Invest again in a month’s time when the market will be … who knows where and what does it matter? And again every month after that.
Too many Australians never invest out of fear of getting it wrong. But no investor gets every decision right. Warren Buffett is famous for making some shockers. He just gets far more right.
What’s your cash earning you right now? Perhaps 2 per cent. After inflation and tax, you, my friend, are watching your money go backwards.
Have a plan to start moving some cash into long-term investments (via managed or exchange-traded funds if small amounts), with some exposure to Australian and international shares and property.
Then add to it monthly, automatically. Start with whatever amount works for you.
Automatic investing takes out the emotion and the fear. On the 15th of every month, you buy, whether markets are rising, or falling.
Over time, with diversification, you will get the long-term returns of the various markets that you are invested in. And you will look pretty smart, even if you didn’t really do much, except get started and make an ongoing commitment.
Should this style of investing feel kinda familiar?
Yes, your superannuation. Your employer regularly puts money into your super fund and assets are automatically bought.
Do you worry about when money goes into your super account? No. You don’t think about it. Your super fund will get the long-term averages.
So, are these most recent market falls another sign to buy?
Maybe. But if you’re buying in, religiously every month, you shouldn’t care. (Because today is the 15th and you’ll be buying again, automatically.)
If markets temporarily collapse again, you’ll pick up a few bargains, with the $1000 that you put in that month.
Don’t worry about the “noise” of what markets are doing each day. Just get started. A start smashes inertia every time. You don’t need to be a Nostradamous investor.