In March of 2020, share markets were sold-off in record breaking amounts and in record breaking time. As most super and investment accounts are market-linked, people’s balances reduced almost commensurately with markets, causing severe angst. I will point out the elephant in the room: the culprit was COVID-19. As fear of the virus inflicted the world, the common reaction it seemed was to sell investments and head for the alleged safe haven of cash. But, in hindsight, was this the correct call?
I am sure most people have heard the long-standing motto of investing that you must ‘sell high, and buy low’. If you manage to time this to perfection every time you invest in an asset, you are a better investor than Warren Buffett. What I mean by that is - the saying is great in theory, but very hard to execute. During a once in a generation international market sell-off such as what we experienced in early 2020, selling your assets at a paper-loss due to fear and outside pressure, can almost certainly be the worst thing to do. Stick to your guns and remember the long game.
Paper losses are effectively a snapshot in time and those losses only materialise if the asset is sold. Going back to the motto of investing, you have sold low while someone has bought low. For those brave enough, COVID-19 presented one of the greatest buying opportunities in history. Granted, at the time nobody really knew the true effect COVID-19 would have on the world’s economy, and as most countries effectively shut down, it did seem things would be dire for quite a while. This is where unprecedented Government action in the form of packages such as JobKeeper and JobSeeker (among numerous others both here and abroad) were introduced as a means to limit and control the economic fall out as much as possible. The result? The quickest and largest share market recovery in human history.
Those who sold their investments or changed their super investments to cash during the crash, crystallised those losses and unfortunately, most failed to change back to growth assets in time to be exposed to the bounce-back. At the time of writing, the All Ordinaries index is almost on par with its pre-COVID levels, meaning if people had played the long game, managed to ignore the noise and done nothing, they would likely be ahead financially.
I firmly believe one of the great value-adds a financial planner can provide is ensuring clients do nothing when it may not seem the best option at the time. In addition to this, clients who received sound financial advice may have benefited from investing money during or just after the crash, rather than selling, which would have resulted in full exposure to the rebound and an overall positive COVID-19 experience.
