SIGNPOSTS FOR INVESTORS IN 2016
3 rules for the road Investing in 2015 wasn’t easy. Term deposit rates dwindled from 3% in January to levels now that, at closer to 2%, are outright meagre. On the whole, the Australian sharemarket has been pretty flat. And any Australians traveling abroad have felt the pain of a 10% fall in the dollar. To help you prepare for 2016, take a look at ‘3 rules for the road’. 1. Caution: curves ahead. Investing in 2016 might feel a bit disarming after strong Australian and global share returns from 2009-2014. But you may want to prepare for lower returns and higher volatility like we started to experience in the second half of 2015. Right now, shares are modestly expensive and US interest rates are expected to rise, which will negatively impact bond returns.
›› D o broaden your investment palette. Simply holding traditional investments—like shares and bonds—may not provide the best outcome.
›› Don’t panic. It’s normal for financial markets to move in cycles. Avoid knee-jerk reactions that could be very detrimental to your financial future. The chart below shows possible outcomes of investing $10,000 in the Australian sharemarket over 35 years.1
Talk to your financial adviser about diversifying your investment mix to include multiple asset classes, managers and strategies and investing with fund managers who can anticipate and respond nimbly to the curves ahead. You might already have a good mix, but verifying can be worthwhile.
Missing just the single best month lost our hypothetical investor over $73,000—or approximately 15%.
Timing or time in? $600,000 $500,000
$495,894 $422,289
$400,000 $315,334
$300,000
$246,698 $199,414
$200,000
$149,726
$100,000 $0 Invested every month
Missed best month
Missed 3 best months
Missed 5 best months
Missed 7 best months
1 From February 1980-July 2015. Represented by returns from the ASX All Ordinaries Accumulation Index.
Missed 10 best months
2. Focus on the big picture—your overall outcomes.
values in 2015. On the bright side, governments in several emerging countries (such as India) are working to stimulate their economies and support growth.
You may be tempted to compare your investment returns to an index benchmark like the S&P/ASX 300 Index, the hottest individual stock or a friend’s portfolio. But it’s important to focus on the big picture: your long-term investment goals.
Despite global market volatility and the large sell-off in the Chinese market since the start of 2016 to date2, our team continues to hold a neutral view on Chinese equities for both A-shares and H-shares3. We are inclined to look through market volatility at this stage and focus on China’s underlying economic fundamentals, which in our view, remain intact.
›› D on’t overhaul your entire portfolio to chase past returns for a hot stock, sector (e.g. technology— remember the 1990s/early 2000s Tech Bubble?), country or investment manager. ›› D on’t compare your results with someone else’s. You work with your adviser for a reason: you have unique financial goals, resources and risks. If you’re 65, your investment needs are probably different from your 30-year old neighbour’s. It’s tempting to chase stellar returns, but you also want to sleep at night—and may not be able to stomach the same risks as your neighbour who has more time until retirement and fewer assets (accumulated to-date) to lose. ›› D o connect with your financial adviser to assess (or re-assess) your investment strategy. It’s good to remember that you chose your current approach for a reason. But it’s also wise to periodically revisit your plan, particularly if something in your life has changed (perhaps due to a marriage, job loss, medical condition, new child or grandchild).
3. Keep your eyes open for good news. While some investments are likely to face challenges in 2016, many investment experts believe it’s not all ‘doom and gloom’. Some places to watch? Emerging markets and China.
›› Don’t just concentrate on the bad news. The world is large and investment opportunities are diverse—from bonds and shares from all over the globe to currencies, property, listed infrastructure investments (e.g. investing in utilities companies, airports, bridges, etc.) and more. While some investments may struggle in 2016, look for good opportunities. ›› Do work with your adviser to consider timely opportunities and risks. Every investment has risks. Your adviser can help you consider what’s at stake. Keep in mind that even ‘lower risk’ investments like term deposits run the risk of not keeping up with inflation. That said, your adviser can identify ways to incorporate timely opportunities—or confirm what’s already ‘under the bonnet’ in your portfolio.
The bottom line? No one can fully predict what will happen in 2016, but working with your adviser to focus on your long‑term goals can help you create the right investment strategy.
Emerging market shares are currently ‘cheap’ compared to historical norms, also impacted by lower currency
2 As at 18 January 2016 3 A-shares are shares in mainland China-based companies that trade on Chinese stock exchanges. A-shares are generally only available for purchase by mainland citizens. H-shares are shares in companies incorporated in the Chinese mainland, but listed on the Hong Kong Stock Exchange.
Getting started For more information and market updates, please speak with your financial adviser or visit www.russellinvestments.com.au
Issued by Russell Investment Management Ltd ABN 53 068 338 974, AFS Licence 247185 (RIM). This document provides general information only and has not prepared having regard to your objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation or needs. This information has been compiled from sources considered to be reliable, but is not guaranteed. Copyright © 2016 Russell Investments. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. R_MISC_Article_SignPosts_V1F_1601