It’s August, and this chilly winter and periodic lockdowns can’t end fast enough for many of us. One bright spot, along with the golden wattle at this time of year, is the golden performance of our athletes in Tokyo. 

The economic fallout from on-again, off-again lockdowns continued in July. The annual rate of inflation rose from 1.1% to 3.8% in the June quarter. This temporary blip was due to higher prices for childcare (which was free in the June quarter last year), petrol and goods in short supply due to supply chain and workforce disruptions. Even so, the Reserve Bank has said it won’t consider lifting interest rates until inflation is “sustainably” within its 2-3% target range.

The Australian economy is expected to contract and unemployment to rise in the September quarter, after the jobless rate fell from 5.1% to a 10-year low of 4.9% in June. Not surprisingly, consumer confidence as measured by ANZ and Roy Morgan fell to an 8-month low of 100.7 points in July. Retail trade fell 1.8% in June but remained 2.9% up on a year earlier.

There are positive signs though for Australian miners’ profits and dividends. Crude oil and natural gas prices are up around 50% this year, while iron ore prices are up 24% due to the gradual reopening of global economies and China’s strong growth, up by an annual rate of 7.9% in the June quarter. Record exports pushed Australia’s trade surplus to a record high of $13.3 billion in June. Australia’s housing boom is also increasing demand for materials, with housing construction hitting a two-and-a-half year high in the March quarter. The Australian dollar fell one cent to around US74c in July.

Investing lessons from the pandemic

When the coronavirus pandemic hit financial markets in March 2020, almost 40 per cent was wiped off the value of shares in less than a month.i Understandably, many investors hit the panic button and switched to cash or withdrew savings from superannuation. 

With the benefit of hindsight, some people may be regretting acting in haste. 

As it happened, shares rebounded faster than anyone dared predict. Australian shares rose 28 per cent in the year to June 2020 while global shares rose 37 per cent. Balanced growth super funds returned 18 per cent for the year, their best performance in 24 years.ii 

While every financial crisis is different, some investment rules are timeless. So, what are the lessons of the last 18 months? 
 

Lesson #1 Ignore the noise

When markets suffer a major fall as they did last year, the sound can be deafening. From headlines screaming bloodbath, to friends comparing the fall in their super account balance and their dashed retirement hopes. 

Yet as we have seen, markets and market sentiment can swing quickly. That’s because on any given day markets don’t just reflect economic fundamentals but the collective mood swings of all the buyers and sellers. In the long run though, the underlying value of investments generally outweighs short-term price fluctuations. 

One of the key lessons of the past 18 months is that ignoring the noisy doomsayers and focussing on long-term investing is better for your wealth. 
 

Lesson #2 Stay diversified

Another lesson is the importance of diversification. By spreading your money across and within asset classes you can minimise the risk of one bad investment or short-term fall in one asset class wiping out your savings. 

Diversification also helps smooth out your returns in the long run. For example, in the year to June 2020, Australian shares and listed property fell sharply, but positive returns from bonds and cash acted as a buffer reducing the overall loss of balanced growth super funds to 0.5%. 

The following 12 months to June 2021 shares and property bounced back strongly, taking returns of balanced growth super funds to 18 per cent. But investors who switched to cash at the depths of the market despair in March last year would have gone backwards after fees and tax. 

More importantly, over the past 10 years balanced growth funds have returned 8.6 per cent per year on average after tax and investment fees.ii 

The mix of investments you choose will depend on your age and tolerance for risk. The younger you are, the more you can afford to have in more aggressive assets that carry a higher level of risk, such as shares and property to grow your wealth over the long term. But even retirees can benefit from having some of their savings in growth assets to help replenish their nest egg even as they withdraw income. 
 

Lesson #3 Stay the course

The Holy Grail of investing is to buy at the bottom of the market and sell when it peaks. If only it were that easy. Even the most experienced fund managers acknowledge that investors with a balanced portfolio should expect a negative return one year in every five or so. 

Even if you had seen the writing on the wall in February 2020 and switched to cash, it’s unlikely you would have switched back into shares in time to catch the full benefit of the upswing that followed. 

Timing the market on the way in and the way out is extremely difficult, if not impossible. 
 

Looking ahead

Every new generation of investors has a pivotal experience where lessons are learned. For older investors, it may have been the crash of ’87, the tech wreck of the early 2000s or the global financial crisis. For younger investors and some older ones too, the coronavirus pandemic will be a defining moment in their investing journey. 

By choosing an asset allocation that aligns with your age and risk tolerance then staying the course, you can sail through the market highs and lows with your sights firmly set on your investment horizon. Of course, that doesn’t mean you shouldn’t make adjustments or take advantage of opportunities along the way. 

We’re here to guide you through the highs and lows of investing, so give us a call if you would like to discuss your investment strategy. 

i https://www.forbes.com/sites/lizfrazierpeck/2021/02/11/the-coronavirus-crash-of-2020-and-the-investing-lesson-it-taught-us/?sh=241a03a46cfc 
ii https://www.chantwest.com.au/resources/super-funds-post-a-stunning-gain

How to manage difficult conversations

Saying or hearing the words, “We need to talk,” whether it’s in the workplace or in your personal life, can be a source of tension and conflict but there are ways to manage conversations that have the potential to be difficult. 

Difficult conversations can range from speaking to a family member about concerning behaviour, to ending a romantic relationship, to navigating care options with elderly parents. In the workplace, challenging conversations include raising concerns about performance or unacceptable conduct, although predictably talking about remuneration has been ranked the most difficult conversation, with 33% of those surveyed stating that they avoided conversations about their pay.i 

Can you remember a time when you’ve had to initiate a conversation you’d rather avoid? Or when someone approached you for ‘the talk’? Perhaps even now you have a challenging conversation looming that you need to have, but keep avoiding? You’re not alone, research has found that one in four people have been putting off a tough conversation for more than six months, while one in 10 have been doing so for a year.ii 

The thing is, avoiding it usually doesn’t help. If handled the right way, an open conversation may even improve the situation or strengthen a relationship, and at the very least your perspective will be better understood. So, let’s look at some ways to tackle a hard topic. 
 

Preparation helps

It helps to give some thought to what you are trying to achieve by having the conversation. Examine your motives carefully and be clear about what you would like as the ideal outcome. 

It can be beneficial to do some “role play” in your head before the chat. To prepare yourself for what you think will be said and practice the best way of expressing yourself. Having said that, it’s impossible to prepare for all eventualities and you do need to accept the fact that you are entering into an open-ended dialogue that could go in any direction. 
 

Active listening

While it’s always tempting to go straight in with your thoughts on the matter, it can be beneficial to start the conversation with some questions to obtain a sense of how the other party feels. Listen to their perspective with an open mind without interrupting and ask their permission to give you the opportunity to respond if you are finding it hard to get a word in. 
 

Use your words

When sharing your ideas, it can be helpful to use collaborative language such as ‘we’ or ‘us’ instead of ‘you’ and ‘me’. Acknowledge that you understand and appreciate the other parties’ perspective by using phrasing such as “so what you are telling me is…”. 

It’s a good idea to use ‘I’ statements. So, instead of saying, ‘You don’t care about me!’, which can make the other person defensive, try: ‘I feel upset with when you…’. 

Try not to talk in generalities. Get to the point, describe exactly what you want from the discussion – do you want an apology, your point of view acknowledged, or change in behaviour moving forward? This will help provide structure to the discussion and a clear way forward. 
 

Look for solutions

The ideal outcome is a mutually acceptable solution to the problem at hand. To avoid the discussion becoming adversarial ask for ideas ie “What are your thoughts are on how we can move forward and work through this issue together?” 

Of course, not all conversations are going to have a happy ending. There will be people, situations or behaviours that you just can’t talk through – and that’s okay. By agreeing to disagree you have both at least aired your respective viewpoints. 

You should also be proud of yourself for taking part in a difficult conversation. It takes real courage. And remember each challenging conversation you have is a learning experience making the next one that little bit easier. 

i https://www.managers.org.uk/knowledge-and-insights/news/top-10-difficult-conversations/ 

ii https://www.hrmonline.com.au/topics/management-of-workplace-issues/avoid-tough-conversation-quit/

Sinclair Financial Group
Level 2, 47 Warner Street
Fortitude Valley QLD 4006
P (07) 3117 0607
E admin@sinclairfg.com.au
W www.sinclairfinancialgroup.com.au

Norman Sinclair – MFinPlan, AFP ASIC No. 249943.
Stephen Vigh – CFP, BBus (Acc & Man), Dip FP ASIC No. 239508
Kyle Medson – CFP, BCom (FinPlan & Inv) ASIC No. 328912
SFG Capital Holdings Pty Ltd trading as Sinclair Financial Group, ABN 42 609 798 469
Authorised Representative of Oreana Financial Services Limited
ABN 91 607 515 122, Australian Financial Services Licensee No. 482234
Registered Office Level 7, 484 St Kilda Road Melbourne, Victoria 3004 Australia
This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.