The year ending September
After enduring almost 2 years of relentless declines in asset values, it’s wonderful to see some tangible evidence that the world is not about to end and a sustained recovery has commenced. It’s amazing what a difference 6 months can make.
The extreme market environment of 2007 – 2009 has highlighted the importance of understanding the risk and return characteristics of different assets under multiple scenarios.
During adverse environments, often only “risk free” assets such as cash and government guaranteed bonds deliver positive returns. Every other major asset class may fall in value. This is what occurred in 2008. In contrast in 2009, so called “risky” assets such as shares, company issued bonds and listed property recovered significantly. Cash and government guaranteed bonds are shaping to be the laggards of this year.
As of the 13th October, the Australian share market was up more than 50% from its March 2009 low, the Australian dollar ($AUD) had rallied strongly, corporate bonds yields had declined sharply, and the listed property market had begun its structural recovery. Positive returns were recorded for virtually all risk assets over the year, and the quarter to 30 September 2009.
The last 6 months are testament to the benefits of maintaining your strategy, particularly if your investment timeframe is long term (>5 years). There is no doubt that the length and severity of the downturn tested the resolve of all investors, irrespective of individual risk appetites. But the enduring lesson is that markets can turn quickly and unexpectedly. Waiting for news of improvements means that you can miss out on some great returns.
Maintaining your exposure to assets such as shares that contribute to economic growth will provide you with premium returns often in short periods of time, as the last 6 months have amply demonstrated.
Congratulations to all investors who held their nerve while their resolve was being tested. I take this opportunity to remind you all of an earlier posting ”Why wealth creation is like our Rockhampton Region’s own Kershaw Gardens.”
Where to from here?
- Contact us
- Get more information about an Educational Forum for you and your friends
- Register and receive regular email updates
Dan Smith is self employed and is for many families their trusted Financial Planner based in Rockhampton. He has clients in various locations throughout Australia but predominately in Central Queensland and specifically the geographic area encompassed by the Rockhampton Regional Council.