Bracing for fall in stocks

SHARES are heading for a fall this year, and investors and super fund members are being urged to plan how they will react.

A share market correction – technically a drop of 10 per cent or more – has been widely forecast for Australia and other countries after stocks surged in 2017.

When the inevitable drop happens, long-term investors should stick with their existing strategy rather than try to time the market, and not panic sell, finance specialists say.

Analysts have forecast a 5-10 per cent investment return from Aussie shares this year but say they will be more volatile than 2017.

Our market is at its highest level since the Global Financial Crisis and many companies’ shares appear fully valued.

CMC Markets chief market analyst Ric Spooner said shares were more vulnerable to unexpected shocks now than they were at the start of the past two years.

“We could easily lose 10-15 per cent without getting down into excessively cheap levels,” he said.

Global investment group AB has warned that Australian share price valuation ratios are about 10 per cent higher than their historical average, which “may be unsustainable and presage a correction”.

AMP Capital Investors expects Australian shares to end 2018 just 2 per cent higher than they are today, while CommSec has forecast a 5-7 per cent improvement from current levels.

Aussie shares pay the highest dividends in the world – about 5-6 per cent including tax benefits, and this income is historically resilient during share market downturns.

Catapult Wealth director Tony Catt said when shares fell, people should understand their initial reasons for investing.

“If it’s for income, ask how is a downturn affecting my dividends? Do I need to panic and sell?” he said.

“People need to be able to feel comfortable with what they are doing, without losing too much sleep. Generally, that lack of sleep might come from a lack of understanding.”

Trying to time the market – by selling shares or switching to a conservative super fund option – could be costly. Mr Catt said people often “leave a lot of money on the table” by getting out early.