We were warned but we still weren’t prepared for 2022

Bruce Brammall, The West Australian, 23 May, 2022

At any given moment, some investors are normally happy and celebrating with a full glass of their own cleverness.

There’s usually a few pockets of brightness, somewhere. Even when things are generally awful, someone has reason to look at their investments and smile.

But not in 2022.

Not for diversified investors. Not for anyone in a regular super fund.

Almost everything is off. Fairly heavily. Listed property and share markets are down. So too are bonds and fixed interest investments, which are reacting to expected interest rate rises.

About the only investors still smiling at the end of May were direct property investors. Even then, property in Sydney and Melbourne has peaked and is now falling.

In a somewhat bizarre coincidence, this year it sort of doesn’t matter what you have had your superannuation invested in. Aggressive and conservative super and non-super investment portfolios have been smashed.

When share markets are tanking (as they have been), conservative investors usually do okay, with their higher investments in bonds holding their portfolio up.

But this year, even non-risk taking investors are bleeding heavily, as bonds have been marked down on average 8-9 per cent, because interest rates are on the rise, globally.

Only cash investors have been safe. Sort of. If you’ve had $100 in the bank, it might have earned 40 cents this year. But with inflation travelling at north of 5 per cent, even cash has gone backwards.

Most investors, whether inside or outside super, are likely to be down around 7-12 per cent so far this year. If you’ve looked at your investments around Christmas and again recently, you probably got a shock.

Don’t panic

Chill. This is normal. It’s amazing how many people think markets should be a one-way street to a place called “Happiness”.

They don’t. None do. Not even cash.

Markets fall. Markets rise. Markets sit around and do nothing for long periods.

If you’ve suddenly found yourself looking at your investments/super every day and letting your mood for the day be determined by how much markets have fallen (or risen), stop it.

Are you going to cash in your super/investments in the next week? Most likely not.

Were you doing the same thing through the second half of 2020 and all of 2021 and going out and making sure you were extra smiley all day because markets were running hot?

No, you weren’t.

Pain weighs harder

There’s a reason for that. Pain hurts more than gain.

The pain of losing $100 hurts more than the joy of gaining $100. (Or whatever multiple of those figures you wish to use.) You’d need to gain $200-300 to feel the equivalent level of joy to the pain of losing $100.

From the end of the Coronacrash on March 23, 2020, to January 4 this year, the average super fund stacked on about 40-50 per cent.

Were you looking at your super every day? And letting your mood be determined by how much your portfolio was up? I doubt it.

Straw hats

So, what do you do?

First, understand that unless you need to cash in your chips, market pullbacks like this are pretty normal. Those that panic and go to 100 per cent cash generally miss most of the eventual recovery.

Many investors see falling markets as an opportunity to invest. It’s known as “buying straw hats in winter”. Buy stuff on the cheap, when no-one else wants them and sell them when everyone wants them and is prepared to pay a higher price later.

If you’re picking up assets 10 or 20 per cent cheaper than they were six months ago, or getting them for the same price they were a year ago, then there’s a way to look on the positive side.

Are they done yet?

Dunno. Maybe. Maybe not. They could fall further. A lot further. And I’m making no predictions. I never do. Because I don’t know.

But the fact is that markets inevitably recover. And you want to be there when they do.

Don’t let your day’s mood be determined by what happened on Wall Street overnight. Don’t let your evening be ruined by what happened to the ASX200.

Take a chill pill. Markets will do what they do. Yep, it’s painful. Everyone is hurting. Perspective. Take a long-term view.

You’ll feel good again, eventually.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial adviser and mortgage broker. E: bruce@brucebrammallfinancial.com.au.