Three golden rules for investors to power through this pandemic
Aussie shares took another huge tumble, the latest in a series of punches for investors and super fund members. These investment rules will help you financially survive the downturn.
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Health fears around coronavirus are subsiding in Australia but financial worries among investors won’t go away so easily.
Our super funds an share portfolios have been smashed by the economic shutdown, and despite some recent improvements, Aussie shares are still more than 26 per cent below where they were in February. On Friday alone they plunged almost 5 per cent.
As overloaded health systems overseas suffer terribly, their economic systems will suffer too. And we will feel the flow-on effect even if we cut our own coronavirus cases to zero.
Australia’s economy is also heading into a recession.
Surviving the pandemic financially is going to be the biggest challenge for millions of people.
So when it comes to your investments, it’s wise to follow some tried and tested rules.
LOOK AWAY
Watching market movements every day will drive you crazy.
Down 3 per cent one day, up 2 per cent the next. If you’ve got a six-figure superannuation balance or a typical share portfolio, those rises and falls equate to thousands of dollars in just 24 hours.
But it’s generally irrelevant in the long-term scheme of things, so don’t check your balances if you don’t need to.
I personally haven’t checked my super account or shares since February, because I don’t plan on using the money for another 10 or 20 years.
All I really need to know is that shares are down sharply and that my balances will have dropped. Why rub it in my face?
BUY BARGAINS
It takes a brave – some may say silly – investor to dive headfirst into the sharemarket now with the belief it has bottomed out. Investment experts say the economic fallout is only just beginning.
However, the biggest gains go to those who buy when everyone else is selling.
Timing is the tricky part – as many discovered during the GFC 11 years ago when they bought up after a 25 per cent slump only to watch their shares plunge another 30 per cent after that.
A good strategy is to buy shares in bits and pieces, over time. Finance boffins call this dollar-cost averaging: spreading your purchases out over many months to reduce risk.
If you have superannuation, it’s likely you’re already following this strategy because your employer’s regular compulsory super contributions are buying units in your fund all the time.
DIVERSIFY
Don’t put all your eggs in one basket, they say.
And they’re right.
Investment experts believe a great way to guard against financial destruction is to spread your money widely across different types of assets including property, shares, bonds, cash, infrastructure and perhaps a few quirky ones like artwork or Star Wars collectibles.
And within those asset types you should diversify more. Hold a basket of shares across different sectors such as health, mining and retail rather than just the big four banks.
There are plenty of different ways to invest in property too, and spread your money around the world – not just in Australia.
Most assets will probably lose value in this year’s global recession, but you don’t want to be stuck with the worst-performing investment because you failed to diversify.
Originally published as Three golden rules for investors to power through this pandemic