What to do when cracks appear

By Jill Nes

Stocks Rout Slams Asia After US Slide”

“Asia Stocks Lost $5 Trillion This Year With No End in Sight”

“Hong Kong’s Worst Run of Monthly Losses Since ‘82 Looks Certain”

This is what you would have seen if you had opened the Bloomberg Asia web page at 4.06pm on October 25 this year. Markets do go down, they also go up. Therefore such headlines, in our opinion, should not cause cold fear or panic. Providing you have the following you should be able to “keep calm and carry on”:

  • You are well diversified across asset classes, geographies and multiple custodians;
  • You have invested in quality value investments (quality trumps Trump);
  • You have some insurance, such as gold, preferably A$ denominated gold;
  • You’ve built a cash reserve to go shopping with when markets are on sale; and
  • You’re committed to a disciplined longer-term investing horizon.

Like everything in life, you need to keep a balance in your investment portfolio. So consider conferring with a specialist wealth-management professional – as you would do with your doctor, your lawyer, your car mechanic – in order to seek his or her professional advice to ensure you’re in good financial shape. And if not, what needs to happen in order to get there.

Try to avoid the dancehall noise: look back to where you were five to seven years ago and where you are today:

  • Look back to lessons learnt and lessons forgotten.
  • Look underneath the hood at your current investments.
  • Look at the character and objectives of your investment managers: how much are they aligned with you?
  • How much of their own money is invested in their companies and the funds they run or recommend?
  • What does your asset-allocation pie chart look like?
  • If you couldn’t do anything for five years, would you still own your current investments today?

Make sure you find an adviser you trust, who treats your money as they do their own, and who considers it a privilege to be guarding your money for you. Then be guided by their wisdom and experience.

And cut your cloth accordingly. Reduce debt and strive to live within 70 per cent of your net income, use the other 30 per cent to pay off debt, to save and invest.

Also, keep the following in mind:

  • Your wealth is irreplaceable, your lifetime savings are sacrosanct.
  • Slow and steady beats fast and volatile.
  • Better a little caution than a great regret.
  • More tortoise; less hare.

WHAT ARE WE DOING?

We would like to share with you a few indicators that may be an early signal as to how portfolios could be affected within the next 24 months. The standout indicators to us are the fragile, volatile global markets; the weakening A$; and Australia’s burgeoning debt situation and the impact thereon.

We constantly ask ourselves: If the barometer of the country is the currency, is the A$ fairly priced? We think not.

Do we know with certainty where these indicators will lead? Absolutely not, and it would be naive to say that we do. However, over the last 18 to 24 months in preparation we have done the following:

  • We have meaningfully reduced our clients’ listed equities and risk asset exposure in anticipation of likely market volatility.
  • We have maintained and even increased our overweight international versus domestic allocations.
  • We have increased exposure to well managed private equity funds, some alternate funds, some domestic (non-residential) and international property.
  • We own gold – both bullion and gold equities.
  • We have increased cash as a percentage of our clients’ portfolios to ensure there is cash to deploy in the event of a meaningful market correction or, colloquially, “the markets being on sale”.

Equity valuations have been rising consistently for a long time, and being invested in listed equities has begun to offer diminished returns for each unit of risk taken.

This has been part of our long-term view for some time, and exposure to these other asset classes offers a lower correlation to global stockmarkets. They also diversify our clients across multiple asset classes, jurisdictions, and custodians.

A question we ask constantly is: “What does your asset-allocation pie chart look like?” This allows us to see the bigger picture. We establish a framework of not having to worry about how many points the Dow Jones was up or down overnight, or by what percentage Amazon needs to beat its consensus expectation on its next quarterly earnings release.

It allows us to direct our day-to-day focus on understanding our clients’ needs and doing our utmost to meet their every objective, to establish for them an anchored well-balanced core.

To constantly seek value, as value is invaluable.

Mindful always that preservation of purchasing power is paramount.

Jill Nes is CEO of BMF Wealth.