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Stock Market Volatility! Coronavirus! Interest Rate Cuts!

Is now the time to invest in the stock market or to get out? 

The short answer to this question is, it depends on your age, your goals and your objectives. If your goals are very short term such as saving for a deposit for a home, or looking to buy a car or saving for a holiday then history tells us now is the time to be very cautious.

However, if you are young and your investments are in your superannuation fund then you can afford to be more aggressive with your investment strategy, as you will not be able to access these funds for maybe 10 years or more.

Nevertheless, where you have invested in the stock market such as market-linked managed funds, direct shares and exchange-traded funds (ETFs) it is critical that you assess the safety and security of these investments. During volatile times we believe you should steer away from companies with large debt, we also recommend you avoid property trusts and mortgage trusts as history has shown us that these types of investments can be difficult to liquidate.

With regard to shares, we favour larger companies as opposed to small and micro-operations. In the current economic conditions we tend to avoid companies in the insurance, travel and education sectors.

It is critical with all investment allocations that you consider diversification. One way to diversify is to consider exchange-traded funds. There are numerous Exchange Trade Funds on the Australian Stock Exchange (ASX) and they represent various regions, companies, sectors and industries.

ETF’s are ideal for the investors that are looking to invest up to $200,000 and are not sure which specific companies they should invest in.

Advantages of Exchange Traded Fund (ETF) include:

Diversification: A single ETF can give you exposure to a diversified group of equities. These equities could be grouped by country, by region or by a market segment i.e. gold, financials, resources etc.

Liquidity: The ETFs trade like a stock. You can sell them today and generally, the proceeds from your settlement would be deposited into your bank account within 2 – 3 days.

Dividends/Distribution: The dividends received by the companies that the ETF invest in are generally paid to the ETF holder every 3 to 6 months. This is handy where you are relying on an income stream as well as capital appreciation.

Transparency: The particular ETF will have a prospectus that outlines the strategies of the ETF and what companies it invests in.

Volatility: Generally speaking ETFs are less volatile than individual shares. This is particularly the case where the ETF represents a number of different industries and or investments in a number of different companies. 

Should you require more information about investing in these volatile times, please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166.