In times of crisis, we need to be reminded that it breeds opportunity.
The FIRE movement on the surface is facing one of its biggest tests after the corona-virus lead market correction appears to have no end in sight.
But as the great Warren Buffett says, investors should “be fearful when others are greedy and greedy when others are fearful.”
If people are able to keep that type of thinking at the forefront of their minds, there is a real opportunity to not only ride out the storm but come out significantly better off. Which at this point in time might sound like a crazy thought.
What we need to remember is that markets move in cycles and this is just a part of the process. For most followers of the FIRE movement, they have only ever really experienced markets that go up.
Let’s remember, that the recent post-GFC bull market was the longest on record. It’s also worth noting that in 2019, the ASX200 posted a 21% gain while in the US, the S&P 500 climbed 29% so there is a bit of a buffer already in place.
At this point in time, all is far from lost. And most importantly, now is the time to start thinking about how you can use this time as an opportunity.
The mainstream media is very good at whipping people up into a frenzy. Regardless of how serious the situation is when the nightly news is covering one topic for weeks on end, it is going to weigh on sentiment.
It’s easy to get caught up in that negative sentiment and think the world is going to end. We must remember that this is very likely a temporary phenomenon and we will ride this out.
If you are invested in stocks or if you have been building your portfolio with ETFs, this would probably not be the time to start exiting those positions.
Markets have a habit of making the majority of people wrong. While our emotions might be telling us to panic that’s generally not what we should be doing.
If you’re in a position whereby your job is still secure, then it should be business as usual. At this point in time, it will be important to keep squirrelling away excess cash. It could come in handy if your situation changes and you need it.
But better yet, there will be some excellent opportunities going forward for those with money in the bank.
History has a tendency to repeat itself, despite what many people might be telling us. When we look at the recent history of financial markets, it’s clear that things always bounce back.
In 1987, stocks plummeted by around 53% including the infamous 22.6% fall in a single day but it rebounded in 24 months.
During the GFC in 2007-2009, stocks also tumbled by around the 54% mark and took 65 months to recover.
Given the nature of the fall, it looks a lot more like what we’ve seen in 1987, with a short-sharp decline.
However, people are starting to understand that this is what stocks do. Already, Google searches for ‘stocks to buy’ have surged in recent days as investors understand that this crisis will be short-lived.
Market Falls – Source: Morningstar
Active Investing Opportunities
Now is the time to start thinking about how you can best capitalise on this type of opportunity.
Just imagine what your portfolio would look like if it doubled in value over the space of the next 2-3 years. Clearly, that is a massive opportunity and could be a real kick in the right direction for your treatment.
The first thing to recognise is the opportunity to allocate funds to stocks, particularly if they fall into those 1987 and GFC type levels.
That brings us to the question of what stocks to buy.
Perhaps a better way of answering that question (sorry Google) is to consider allocating funds to professional money managers who are able to identify those once in a generation type opportunities.
While investing in passive-type funds like market ETFs is good when we’re in raging a bull market, when times get a bit trickier we should consider getting some help.
That’s where active ETFs can be a really good opportunity for investors.
Active ETFs allow you to leverage the skill and expertise of experienced fund managers while having the ability to quickly and cheaply buy and sell on the exchange.
You also have the flexibility of identifying broad-based strategies that might be in keeping with the current market environment and your own financial situation.
For example, in times of crisis, money often moves into areas that are considered ‘safe’. So for stock market investors, which is where most people will park their money, that likely means in blue-chip stocks.
An active ETF that focuses on the ASX50, could be considered a safer strategy than simply buying the broader market. But of course, you need to consider your own personal situation and this is only general advice.
Our goal is to set ourselves up financially as quickly as possible. So if we are to beat the majority to our retirement goals then we have to do what the majority are not doing.
Clearly it is now important to reiterate what the great Warren Buffett suggests, we ‘“should be fearful when others are greedy and greedy when others are fearful.”
So consider the current climate an opportunity.
Keep working towards your financial goals and understand that 2020 is just a temporary situation.
Please note that these are the views of Camilla Love, Managing Director, eInvest and were prepared for information purposes only. Accordingly, reliance should not be placed on this presentation as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.
To find out how to invest in our active ETFs, visit here. The product disclosure statement and more can be found at www.einvest.com.au