My client went on holidays to Canada and the US in early 2020 and returned to Australia in mid March, just as the market was bottoming due to COVID.
She was distressed after seeing the situation in the US and was scared by what she had experienced. She called me and asked me to sell down her investments and move to cash.
I spent a long time on the phone with her, talking through the emotions she was feeling. I explained our long-term strategy for her portfolio and that we had sufficient funds in capital stable, defensive assets like cash and term deposits to continue meeting her monthly living expenses. She was worried that the market could go lower, and I acknowledged that it may, but explained that the market had already priced in a protracted downturn in economic activity. I also explained the risk of selling at the bottom of the market and crystallising losses, rather than holding on and allowing time for the market to recover, as it has in the past.
She eventually decided to leave the portfolio as it was.
Later that month, I spoke with her again about the opportunity the market sell-off had created. We discussed exiting some underperforming and non-core assets and reinvesting into higher quality assets that had also declined in value. I shared with her, both over the phone and via email, that “in this environment, it is imperative we maintain a calm head and make rational investment decisions that look beyond the immediate chaos and position the portfolio for the recovery that will occur once the health crisis passes”.
Due to the actions we chose not to take, and those we did, based on rational decision making rather than fear and panic, the client was approximately $190,000 better off over the course of 2020.
Suzie Barnaby
Authorised Financial Adviser 001004887
Morgans Port Macquarie
