As always, the smart money says hold on to what you have

Suite spot: ‘your portfolio is like your face: don’t touch it!’

If you have shares (directly or through your super fund) it’s reassuring to know that severe downturns have been followed by severe upturns where the gains have been greater than the losses.

“Your portfolio is like your face: don’t touch it! When markets ­inevitably decline, rebalance your portfolio but leave your money alone and let it percolate, because declines become recoveries.” That’s Steve Cassaday, head of independent wealth advisers ­Cassaday & Co, who has been listed in the Barron’s US Top 100 ­Financial Advisers list across many years.

“Bear markets do not destroy wealth,” he says. “How we behave during bear markets is what destroys wealth.” He and his team are telling clients to “hold on to the side of the kayak”.

Like many good advisers, Cassaday & Co charges fees, doesn’t work on commissions, has no proprietary products or programs and no economic incentive to sell certain investments, push ­particular strategies or keep you buying and selling shares. As the Australian Securities & Investments Commission’s moneysmart.gov.au says: “If they (financial planners) get a commission for selling a financial product, like insurance, they may push this product. But if they charge based on how your investment ­performs, they may work harder to grow your money.”

This and more great stories in The Deal magazine’s June 2020 issue, out Friday.

Even for relatively sophisticated investors (and the government has a definition for that: in 2001 it decided a “sophisticated ­investor” had $250,000 a year of gross income or net assets of $2.5m, which covers almost anyone in Sydney who owns a house), trying to get independent and trustworthy financial advice is a nightmare.

As the Financial Planning Association lays out in its latest policy platform: ‘The regulation of financial advice has evolved over the past two decades into a complex framework of laws, regulation and regulatory guidance. Multiple regulators are responsible for overseeing an industry that is structured with licensees and financial planners.”

Add the impact of COVID-19, which the International Monetary Fund calls “the worst downturn since the Great Depression”, market volatility and an uncertain economic future that has yet to fully play out in the property ­market, and it means whatever you pay for a bit of advice from a trusted adviser will be pretty cheap during the next few years.

Here’s the thing: when we talk wealth in Australia we mainly talk the value of your home. Our personal wealth (a little more than $1m each in 2017-18) is made up of your house and “increasingly superannuation, with average household super balances nearly doubling over the past 12 years”, according to the ­Australian Bureau of Statistics. This means 80 per cent of most people’s money is in their home. And that’s not good news according to the University of Melbourne’s James Brugler and Jonathan Dark, who estimate that a quarter of households will see a fall in equity of 10 per cent or more in Sydney, Melbourne and Brisbane, while in Perth “one-quarter of households face a reduction in home equity of 20 per cent or more”.

And it’s not good news for the economy. The Reserve Bank found that “increases in ­household wealth supported household spending between 2013 and 2017, when growth in disposable income was weak. Similarly, declines in household wealth typically weigh on consumption.”

The combination of all these factors is a heightened sense of FOMO (fear of missing out). You feel you have to do something urgently to protect your wealth. Andy Burish, No 30 on the ­Barron’s US list and a UBS adviser who manages $5bn, says he and his team are concentrating on keeping clients calm and focused on their long-term plans: “We’ll reassess opportunities over the next three or four months and make some tactical changes.” In other words, it’s hard to be patient.

The reality is that this time it’s not different (except for the physical health aspects). Globally we average a serious financial crisis about every five years. If you have shares (directly or through your super fund) it’s reassuring to know that severe downturns have been followed by severe upturns where the gains have been greater than the losses. A T. Rowe Price study this year showed that “over time, a hypothetical steady investor who stays invested is likely to outperform a hypothetical anxious investor who jumps into and out of the market”.

Thinking about your house, it’s also reassuring that the Reserve Bank reports that “since 1982, real dwelling prices have grown at an average annual rate of almost 3 per cent, about tripling in value”.

So, if you don’t have to sell, hold off; if you do have to sell, you should probably do it now; if you have the money, sometime soon will be a good time to buy an established house or townhouse in the best markets. Most insiders say don’t buy apartments off the plan, in high rises or new suburbs.

Right now, a lot of home values are being held up by the government and banks. When that goes and the economy gets worse, a lot of Australians will feel the pain.

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