How to navigate volatile (falling) markets

Listening to the news and reading the papers can scare investors into making rash decisions. So how can you navigate falling markets and market volatility?

The investing rollercoaster

The financial press worked itself into a frenzy last week as the benchmark S&P 500 in the US briefly reached a 20% fall from its recent high in January. The Australian market has been a little better, falling 8.3% from its more recent high. The difference is mostly due to the relative lack of tech companies here in Australia.

When investors see red across their portfolios, the emotions this can trigger often lead to poor decisions. So, here’s a short guide to navigating market volatility.

Part 1: Before the downturn

My clients all have a Statement of Advice which was completed during times when markets were more calm, and for investors that usually means ‘going up’. It is this document which details your long-term plans.

For accumulators these plans may be different from my retiree clients, but the sentiment is the same – we have invested funds for the long-term and there will inevitably be periods of negative performance. I say again, there will be periods of negative performance on a regular basis as soon as you move from cash to any other asset class. Even cash isn’t shielded from going backwards. With inflation running at over 5% per annum in Australia at the moment, and the big four banks offering 12 month term deposit rates of 0.60% per annum at time of writing, your cash is losing purchasing power of at least 4.4% per annum if you chose those term deposits!

So what to do? Whether you’re an accumulator or a retiree the approach is the same – stick to your plan.

Part 2: When markets head south

All market downturns are slightly different. This time both the growth and defensive parts of portfolios have headed in the same direction, down. This is not usually the case but has been the consequence of historic low interest rates. When interest rate expectations rise, bonds tend to fall in value. Unfortunately this has happened at a time when equities could have done with a hand up from their bond friends.

When market volatility eventuates, emotions will quickly become elevated. The first thing to do is stay calm.

The next thing to do is to review that plan you have (your Statement of Advice). Now comes the hard part – following through and sticking to the plan. As Mike Tyson famously said, “everyone has a plan until they get punched in the mouth.” For investors, a market downturn is a bit like getting punched in the mouth. What seemed like a good idea in the calm of a bull market, might suddenly seem folly when markets are in freefall. But that’s why we plan and write things down, because making decisions like these in the heat of the moment is a recipe for failure.

Selling at a low point in markets can crystallise an actual loss of capital. Doing so ensures you’ll never get this back. What about re-entering the market, Dan? I can do that. Of course you can, but can you pick the bottom? By the time you calm your nerves and reenter the markets you will have most likely missed a good part of the recovery, if not all. What effect can that have on long-term performance?

What if you missed the best days in the market?
Source: Bloomberg, AMP

Key message: market timing is great if you can get it right, but without a process the risk of getting it wrong is very high and, if so, it can destroy your longer-term returns.

The grind higher

Markets can sometimes fall very quickly, before recovering slowly. Or as it’s more commonly described among investors: markets go down the elevator and up the escalator.

Remember March 2020? The Australian share market fell by 36% in that month! It then recovered all of those losses and is 1,800 points higher than the March 2020 bottom at time of writing.

Let’s look at that and some other examples of market downturns to see how they’ve panned out:

ASX200 during the COVID-crash
Source: BetaShares. The performance of the S&P/ASX 200 during the 2020 ‘COVID-crash’ and recovery. Past performance is not an indicator of future performance.

S&P500 during the global financial crisis
Source: BetaShares. The performance of the S&P 500 during the Global Financial Crisis and subsequent recovery. Past performance is not an indicator of future performance

Nasdq100 performance during the tech wreck
Source: BetaShares. The performance of the NASDAQ 100 during the tech bust and recovery. Past performance is not an indicator of future performance.

As said previously, each market downturn or bout of market volatility is different and the lengths of time of the downturn and subsequent recoveries are different too. However, investment markets have been doing this for many, many years and they will continue to do so. Having a long-term plan, and importantly, sticking to it, is your way out of these downturns.

If you stick to your plan, you’ll likely do better than most. And hopefully you don’t lose too much sleep along the way.

Don’t lose that plan though. You’ll need it again someday.

If you have any questions regarding the content in this email, or would like to discuss this or your portfolio in more detail, feel free to give me a call on 03 5227 7777.

How might coronavirus impact your portfolio?

Stylised coronavirus

We’ve all seen the news, and we’ve all read the articles. In fact, some may have been caught up in the toilet paper frenzy. But how do we make sense of the coronavirus fears when it comes to our portfolios? If you’ve been living in a cave you may not have noticed that share markets around the world have been hit pretty hard by panic selling due to reduced trade, restrictions of movement of millions of people, travel bans, and more. What does this mean for your portfolios, how long will it go on for, and will everything be OK?

While we’ve seen other viruses impact markets, I can’t remember SARS, the bird flu, swine flu, or any other disease impact markets to this extent. I’m 100% certain I didn’t see people punching each other over trolleys full of toilet paper. The difference this time around has been the pure contagiousness of the disease. This single factor has meant that in order to prevent a lot of deaths, authorities have moved to stop the movement of people to a staggering extent. Literally tens of millions of people have been unable to leave various regions, such as Wuhan in China, and Lombardy in Italy.

This unprecedented halt to travel, large gatherings, etc has seen a slump in global trade, with some sectors feeling the brunt more than others. Obviously those companies in the travel industry are suffering a serious reduction in passenger numbers, and this will translate directly to their profits. Decreased activity in Chinese factories has reduced the demand for raw materials, affecting mining companies. Restricted travel and general fears of contracting the virus has seen many people stay home rather than go shopping, to work, to restaurants and the like. 

The end result of this will be slowdowns in the global economy in general, and various countries’ economies in particular. Here in Australia, it looks likely that we will head into a recession, if we aren’t there already. A recession is defined as two quarters in a row of negative growth in the economy. In other words, things are going backwards. Because this is reported on the back of data from previous periods, we may well be in a recession before we even know about it. Is a recession the end of the world though?

Remember the Global Financial Crisis? That was bad. Plain and simple. There were serious structural issues at play within the banking systems around the world that meant that lending to businesses, individuals, and between banks effectively stopped. Many companies went bankrupt as a result of not being able to refinance debt, even though their business was otherwise fine. This, although scary, is not another Global Financial Crisis. We’ve already seen governments try to contain the virus, launch, or at least propose new spending measures to stimulate economies and try to do everything in their power to stave off recessions. While these activities may or may not work in the short term, what I am confident of is that they will work eventually. 

It is important to take what the media portrays with a grain of salt. While markets fell heavily last night in the US, as of writing the Australian market is slightly ahead today, and these wild swings will probably continue for some time yet. The fact that markets are still ahead of where they were at the start of 2019 has conveniently been ignored by most press articles while they concentrate on the amount of money being ‘wiped off the ASX’. These reports are unhelpful as they feed fears of those that are already fearful, potentially prompting them to sell, and the market falls more, creates more panic and so on. Just like the toilet paper fiasco we’re also witnessing.

I don’t want to be seen to be downplaying what is going on totally. Businesses will be affected, economies will slow, but I believe that this will be relatively short-lived due to the measures of government stimulus packages around the world. Once coronavirus has dissipated somewhat, a vaccine is announced, a treatment is developed, or it is somehow contained, these packages should result in a fairly swift recovery.

So? What do you do?

You stay the course. Activating your fears by selling your portfolio now will result in much more significant losses than staying the course and watching the market eventually right itself when the panic subsides. After all, is BHP, Apple, Commonwealth Bank, Microsoft, Alphabet (Google) etc significantly worse companies today than they were two weeks ago? I don’t think so. This is a time when fund managers start to look at the cash they hold in their portfolios and rub their hands together to buy up bargains because company shares may be a lot cheaper today than what they were two weeks ago, and fundamentally nothing has changed for that company.

We’re still here after the worst financial crisis since the Great Depression. We will still be here when coronavirus has had its day in the sun. Importantly, follow the advice of official health channels, not what you read on Facebook or

The Australian Government has provided some great resources. If you are concerned, interested in debunking what Trevor said down at the pub, or generally want to learn more about the virus, you can find more at

Stay safe, and educated.

11 common aged care questions answered

Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.

Aged Care is an extremely complex area but planning ahead and obtaining professional advice and help you make the best financial decisions for your loved ones. Below are the answers to the most commonly asked questions about Aged Care.

As people live longer, an ever increasing number will end up in aged care. The number of people in permanent aged care in Australia is expected to triple in the next 35 years, from 225,000 today to 700,000 in 2050.

The aged care industry is very complicated and many decisions must be made, often involving large sums of money.

The following is a list of the most common questions that we hear, and the answers to them.

1. Why is aged care so expensive?

A: Aged care is very labour intensive, and land and buildings are expensive to buy and maintain. The owners of such facilities expect to make a return on their investment. From a client’s point of view, typical fees include accommodation deposits and charges, daily fees, extra services fees and means-tested fees.

2. Is the accommodation deposit negotiable?

A: Yes. Accommodation deposits (known as RADs or Refundable Accommodation Deposits) can be as high as $2 million to secure a bed in an aged care facility. In many cases, these RADs are negotiable and at times can be as much as halved. Willingness to negotiate on RADs depends very much on the demand for beds – and the supply of beds – in a particular aged care facility.

3. What alternatives are there for paying the RAD?

A: Many aged care facilities prefer the RAD be paid as a lump sum up-front. However, it is possible to choose to pay interest payments only or pay with a combination of lump sum and interest payments. A bank guarantee is not an alternative.

4. Will the family get all of the RAD back?

A: In a government accredited aged care facility, the accommodation deposit is fully government guaranteed. Before July 2014, the accommodation bond repaid to the family would be reduced by retention amounts deducted by the aged care facility. Since July 2014, any lump sum paid as a RAD is now generally repaid in full, 14 days after a person leaves the facility, or where the resident has passed away, to their estate when probate has been granted.

5. Why does the Government charge different daily care fees to residents?

A: The standard daily care fee for a resident in an aged care facility ($58.98 per day) is set at 85 per cent of the full Age Pension. All residents must pay this fee. However, it does not cover the full care costs of the resident. The Government may ask the resident to pay an additional amount as a means tested fee and then pay a subsidy for each resident’s care needs to make up any shortfall.

6. What is the Means Tested Fee?

A: The means tested fee is set by the Government and collected by the aged care facility based on an individual assessment for each resident. It is an attempt by the Government to ask residents with the financial capacity, to contribute to the cost of care. This fee can range from nothing to a maximum $400.08per day.

7. What is the Extra Services Fee and should I pay it?

A: The Extra Services Fee, which can be as much as $120 per day, is supposed to give the resident extra services, including more activities and access to additional services like podiatrists and hairdressers. If your aged care facility is charging an Extra Services Fee, you should ask what services are being delivered and assess whether or not you are receiving value for money.

8. Paying daily fees will impact on my cash flow. What strategies are there for dealing with this?

A: It is possible to negotiate to pay some or all of the daily fees from the RAD to minimise the impact on your cashflow. This means, of course, that less of the RAD will be returned at the end of the care period.

9. What implications are there for my social security or pension?

A: The RAD is an excluded asset for social security purposes. Therefore, in some cases, where existing cash is used to pay for a RAD, it can result in a new or increased pension entitlement. More often, a family home is sold to fund the RAD. In this case, while the home is excluded, the proceeds from its sale are counted as an asset. As a result, the cash remaining after paying the RAD can often result in a pension being reduced or lost entirely. However, there are ways to maintain, or even increase, one’s current entitlements.

10. Will I need to sell the family home to pay the RAD?

A: Not necessarily. Four key questions are:

  • Do you need to sell the home?
  • Can you afford to keep it?
  • What happens if you rent it out? and
  • Will your decision have an impact on any pension or aged care fees?

The family home is often a couple’s most valuable asset and many people wrongly assume that it needs to be sold to provide funds for RADs. The key driver is to make sure that, like any valuable asset, the home generates a financial return. This return takes the form of rental income and capital growth (which RADs certainly don’t provide). The home is treated on a concessional basis for the Age Pension and aged care fees.

For Age Pension purposes, if you move into care the former home’s value will be excluded from the Age Pension assets test for two years, although any rental income will be assessable under the income test. The value of the home is capped at $162,815 for aged care means testing and any rental income is assessable.

Source: Money and Life by the Financial Planning Association of Australia

Read This If You Receive Centrelink Assistance

Organisations, like people, aren’t perfect. Large organisations are prone to errors just as individuals make mistakes. And Centrelink is no exception.

Recently, a client (who is retired and receives a Centrelink pension) came in to see us for her annual review. While reviewing her finances I felt that her fortnightly pension was too low. So I did some investigating. Several phone calls and phone wait queues later: my calculations were confirmed. Unbeknownst to my client, Centrelink was paying her hundreds less that what she was entitled to.

Now look, this was a simple error. As I mentioned, no organisation is perfect; to err is human. But the lesson? Our financial lives should never be left on auto-drive. I can’t emphasise enough how important it is to get an independent financial review. In fact, I can share three tips from this experience.

Tip #1 Don’t assume organisational omniscience

In other words, remember that organisations, particularly large organisations, aren’t infallible. Errors can occur, so stay vigilant. That’s the beauty of getting another set of (qualified and independent) eyes on your financials.

Tip # 2 Get regular financial health checks

Just as we need to be proactive, rather than simply reactive, when it comes to our health — so too our finances. Don’t just wait til something goes wrong. Have an annual or even 6 monthly financial health check. This is an opportunity to review and possibly rejig your financial present and future. Had my client not checked in for an annual review she might possibly still be hundreds, if not thousands out of pocket.

Tip # 3 Don’t play the blame game

When things go wrong, it’s human nature to feel slighted, angry and start wagging the finger. This is neither helpful nor humane. Far better to assume that errors are the rule rather than the exception, than to expect perfection and get outraged when mistakes occur. This way you stay vigilant, calm and clear.

Whether you receive Centrelink Assistance or someone you love receives it, please read this as your reminder to get a regular financial health check. Or stay calm and….call Centrelink.

Get Engaged With Your Superannuation

With the end of the financial year looming, tension is always on the rise. Is your paper work up to date? Have you made an appointment with your accountant? Do they have to play those end of financial year ads on a loop?

With so much to think about, and so many unwelcome reminders, stress can make us overlook some important details.

We’re all guilty of it – you receive your superannuation statement in the mail, consider it for one moment, then toss it out without a second glance. You’ve got a tax return to organise, why would you take time out to examine that extra piece of paperwork?

Your super matters now.

Whether you’re going on 50, or have scarcely scraped your 20’s, if you’ve got a job, chances are you’ll have one or more superannuation funds already earning money. Making sure your super reaches it’s full earning potential, however, is where your financial advisor comes in.

Superannuation isn’t something you should be thinking about when it’s almost time to retire, if you put in the work now, you’ll be reaping the rewards later in life. It is what will differentiate your lifestyle from your neighbours, friends and colleagues – even with the same income, within the same work industry.

Many individuals who have their superannuation professionally assessed, find that they’re under-utilising, overpaying or simply have no need for their product.

So next year, when you receive that little piece of paper, think twice before adding it to the junk mail pile. A little extra labour now, will mean a whole lot of reward later on. Call your financial advisor and make sure your super is working as hard as you are.

Don’t be complacent, get engaged with your super!

Budgeting is not a dirty word:

Budgeting is not a dirty word:
Budgeting. It’s most people’s least favourite word. But it doesn’t need to be. By reframing budgeting in a way that works for you, you’re much more likely to have success. So, how can you make the most of what you’ve got and spend it in the way you like?