Time to bail out of shares?
The chance of a market correction is higher than it’s ever been, writes Susan Edmunds.
Nervous investors considering moving their sharemarket investments into cash are being told to think carefully first.
Investment returns around the world have been running hot for some time. Commentators have described the situation as ‘‘a bull market in everything’’.
Christopher Douglas, Morningstar’s director of manager research ratings for Asia-Pacific, said he had started to hear about more investors wondering whether it was time to bail out and move their money into less risky asset classes. That might mean moving from shares or property to cash, for example.
‘‘It’s a difficult one, as equity markets around the world have been performing very well, but there are a lot of risks present in the market, too, especially geopolitical risks,’’ he said.
Clayton Coplestone, of Heathcote Investment Partners, agreed there was probably volatility ahead.
‘‘If you want to access markets through index or passive funds and there’s no fundamental analysis [of the investment] done, the probability of a correction is higher now than it’s ever been.’’
Chris Tennent-Brown, a wealth economist at ASB, said it was an especially pressing consideration for people who were nearing retirement and wanted to lock the gains in.
But he said shifting out of riskier assets should be part of a normal investing life cycle.
As investors get nearer the time when they need access to their money, they have less opportunity to recover from a market downturn.
Tennent-Brown said investors who tried to pick the peak of the market for other reasons could have it backfire on them.
‘‘If you’ve got a long time until retirement this will be one of many times when you might think ‘the markets have had quite a good run, maybe I should get out’. But you could have thought that last year and missed out on a period of stellar returns.’’
He said investors had been urged to get out of the mark ever since Donald Trump looked set to become US president. ‘‘Although it’s not been a particularly pleasant time in terms of news headlines, it’s been a good period for the sharemarket.’’
‘‘If you think about the things you do through an average day, you’ll understand there are some businesses that will continue to make money in fair weather and foul.’’
Clayton Coplestone of Heathcote Investment Partners
Douglas said there were few people, even investment professionals, who had the ability or temperament to pick the right time to shift investments.
‘‘And even if investors do go into cash and the markets fall, when do they know is the right time to re-enter the markets? There is a lot of great analysis on the power of staying the course. Even if you look at the global financial crisis, investors who remained fully invested through 2008 and had a diversified portfolio did come back and reach new investment highs.’’
‘‘For the last 18 months we’ve been declaring bubbles in all markets including equities,’’ said Coplestone. ‘‘But we’ve been proven wrong, the markets have continued to rally.’’
Even if an investment class such as shares seemed overvalued overall, there were almost always exceptions within that.
‘‘Which are massively overpriced, which are fair priced or if you’re lucky, which are mispriced?
‘‘If you think about the things you do through an average day, the products you consume, you’ll understand there are some businesses that will continue to make money in fair weather and foul. But you’ve got to be able to buy them at the right price. The same can be said for debt, property.’’
He said investors needed to know they were in the right investments for the right reasons and understand why – ‘‘rather than having blind faith they can’t explain. That’s when people are going to get burnt.’’