The below question from Kate in Fremantle was originally asked on the Adviser Ratings site and answered by our Principal Adviser, Sara Millard.
We’ve reproduced it below for your benefit.
As a young person/mid lifer accumulating super and whose retirement is some way away… What are the positives of this market fall and how can I ensure I am positioned to benefit from the growth post COVID 19?
– Kate from Fremantle
I am happy you asked that question and have had the foresight to see that there may be opportunities to benefit from such an unprecedented event, especially for young or mid-life accumulators.
There are a couple of key positives that can occur when investment markets fall:
I always say the best way to position one’s self to benefit from the growth past a market fall is to be aware of how investment markets operate. Have a basic understanding of the types of asset classes that are available, i.e. shares, property, alternatives, infrastructure, fixed interest and cash and their correlation with each other.
Another way to benefit from growth post COVID-19 is to understand the underlying characteristics of different types of growth funds. For example, some will focus on capital growth only and others will focus on capital growth and income.
Be careful of trying to pick the market, and the right time to invest during periods of volatility. Some of the best economists who study the markets every day can get it wrong. Ensure that you have surplus cash flow available to invest and be aware of the suggested time horizons for the specific investments you are considering.
There are ways of buying into investment markets when they are volatile and leveraging the investment risk. These include:
Kate, a key thing to be aware of is that markets move in four phases; and that understanding how each phase works and how to benefit from these different market cycles can have a huge impact on your potential success. These are:
A cycle can last anywhere from a number of weeks to a number of years, depending on the market in question and the time horizon the investor has.