A question clients have asked me a lot over the last six weeks is whether it is too late to do anything given the equity markets have already sold down by between 5% and 10%.
When thinking about market moves, the aim is never to try and assess exactly what’s going to happen tomorrow. It’s all about understanding the environment and positioning portfolios in a manner that will allow us to manage the potential as well as know investment risks that can eventuate. Whether it’s investment market risk, political risk or interest rate risk etc, it’s all focusing on how to manage those risks in the context of an overall portfolio framework. Every portfolio needs a level of ‘risk; to achieve a return. And even holding cash is a risk decision due to the opportunity cost if that decision turns out to be wrong. In our view, balance and the preparedness to manage a strategy on a continual basis is important in delivering a consistent outcome.
In term of the recent market environment, we have been taking some of that risk off the table and believe that to be appropriate given the broader market backdrop. However in saying that we don’t believe investors need to make wholesale changes to portfolios unless circumstances have changed materially in recent periods. Being disciplined around the investing process is just as important as making the ‘right’ decision at any point in time.
Ultimately the way you structure your portfolio needs to be in line with your longer-term needs and objectives. This doesn’t mean that you set and forget your strategy, but it also doesn’t mean that you should throw the baby out with the bath water.
So while it’s been a difficult month, it hasn’t been unusual. Volatility in equity markets is normal and should be expected. We’ve seen movements like this before and we’ll see them again. There’s no need to make any significant changes if you’re balancing the overall risk of your strategy to your long-term investment needs.
Piers Bolger is Chief Investment Officer at Viridian Advisory
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