It appears panic has set in at many levels around the world.The COVID 19 is now officially a Pandemic / Italy has closed borders / share markets are officially in BEAR market territory / most economies Globally are facing recession.Let’s put things into perspective.(feel free to please call your adviser and have a chat if you are concerned).
Those clients of Kelly Wealth who are retirees on superannuation pension that rely on all various investment markets for their income returns:
• Cash rates and term deposit rates are at historic lows and getting lower – 1% pa or less.
• A well-diversified super pension portfolio has a mix of blue-chip shares (all down in value now but will recover in value) but also fixed interest (have gained during this volatile period), property securities and infrastructure (lower in value but doing much better than shares) – but all are paying income of between 3% and 7%.
• Income and dividends are still being paid. Some companies are paying share dividends at rates of over 7% pa.
• Our strategy is to always have enough conservative assets or income to fund pension payments for 3 years plus at least. This allows for your capital to recover in case of a share market fall (exactly what’s happening now). I was advising clients during the GFC – 2007 to 2009 and then Euro Crisis in 2011. By following our strategies all clients’ capital recovered.
• If you are on a partial Centrelink aged pension – we will re produce a new Centrelink schedule (showing current balances) for you, which should mean you will receive an increase in your aged pension.
Investors and Super accumulators:
Those clients who are investing/growing wealth, reinvesting income and dividends, or making super contributions:
• For high growth and growth clients, most we encouraged to become a little more conservative during end of 2019.
• Like all bear markets – they recover as will this one. See the chart of US markets – Dow Jones during the GFC. The market falls took 13 months as the banking collapse panic spread. This COVID 19 panic is far more rapid – a matter of weeks/months. Recovery is expected to be far faster than the GFC recovery.
• Dollar cost averaging. This occurs when interest or dividends are reinvesting back to buy more shares, or super contributions going in regularly and buying more shares. At this time while prices are so low you will be buying more shares for same investment (lower price of shares).
• Government leadership to contain this health crisis is happening now. Their policy to contain the virus is what is creating the damage to the economy.
• Government leadership to limit panic needs to happen now.
• There is expected to be a recession – a technical recession. Some sectors will recover quickly, and some won’t.
• Government and central bank stimulus is happening as we speak and this will give confidence / reassurance back to investment markets.
• The impact to the economy is short term and recovery will occur BUT some parts of the economy will be damaged. Assessing this right now is difficult.
• Stock prices will recover / preserving wealth in the long term is what we do.
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• China was able to contain the virus spread reasonably successfully and when this occurred their economy has been able to recover. Right now, factories are reopening and the Chinese people’s lives are getting back to some sort of normality albeit slowly.
• The virus spread rates in Europe and US are increasing and the containment will be more difficult compared to China. The move back to normality is expected to be slower.
• For markets to stabilize we need leadership. A virus containment plan – happening now and an economic support plan – happening now.
• For markets to recover we will need to see the virus spread rate reduce and evidence the economic stimulus is working.
• Markets are always forward looking and so will react either downwards or upwards weeks or months in advance. We are seeing the downward now and look forward to seeing the upward.
What to do:
• Stay healthy- https://www.health.gov.au/health-topics/novel-coronavirus-2019-ncov
• Don’t panic, in particular about investment portfolios. Like during the GFC when the headlines read –‘ The End of Capitalism’, this did not happen and all markets did recover.
• If you’re still concerned, call your adviser.
DISCLAIMER: This information was prepared by Brent Kelly as part of YFG Cairns Pty Ltd trading as Kelly Wealth Services. YFG Cairns Pty Ltd is an Authorised Representative of Your Financial Guide Pty Ltd AFSL 511377. Kelly Wealth Services advisers are authorised representatives of Your Financial Guide Pty Ltd ABN 63 628 588 938 and operates under Australian Financial Services Licence No. 511377.
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