As things currently stand it looks like Donald Trump is going to take out the US presidential election. Unsurprisingly the Australian share market sold off sharply today as a result, which is likely to feature heavily in the news cycle. We are also likely to see some ongoing volatility in markets over the next few days as political analysts, economists and the general public digest the outcome.
While sensationalist headlines grab attention and sell newspapers, it is important to remember a few things over the coming days in relation to your investment portfolio:
1) Libero risk managed portfolios are very diversified. When shares sell off bonds tend to rally, partially offsetting any fall in value. So even client portfolios with higher risk targets are unlikely to experience the same level of volatility as the actual share market. This is even more so the case with more conservatively targeted portfolios.
2) Short term volatility is exactly that, short term. While the portfolios are designed with long term wealth accumulation in mind. Getting caught up in short term headlines and market moves often serves no other purpose than to cause anxiety, when a few weeks later markets have well and truly moved on. For example the graph below shows what happened to the ASX200 Index after the Brexit vote. As you can see, even though markets initially sold off, they went on to record strong gains in the following weeks.
3) Ultimately markets are driven by economic conditions rather than political outcomes. As disagreeable as Trump’s character may be, in the short to mid-term some of his policies may even prove stimulatory for markets, such as his promised infrastructure spending. Also if sentiment turns too negative, central banks are likely to take their own stimulatory action, as they did post Brexit.
4) If markets end up over-sold, relative to the fact that the global economy is actually showing some encouraging signs of growth, this may provide a buying opportunity for us. Particularly given our long term focus and the fact that the portfolios were positioned “overweight” cash going into this event.
If you have any queries or concerns, or would like to discuss the markets and recent events in general, please don’t hesitate to call my direct line, 02 9119 3698.
Glen Holder, BCom, DipFP, CA, MAppFin
Director – Investment Management