It feels like there is more global uncertainty at the moment. Things such as a global or domestic economic recession, US/China trade war tensions, Brexit, Trump’s rhetoric, the prospect of zero (or negative) interest rates, what property prices might do here, all seem to dominate the news. You may find these matters confusing and they can create inertia.
So, how do you navigate these seemingly turbulent times?
Consider issues in a long-term context
Last week, the Australian share market fell 3.7% between Tuesday and Thursday. These types of dramatic movements attract alarmist headlines. The reality is that despite this drop, the market is still up 10.1% over the past 12 months, which is much better than other developed markets.
The volatility (VIX) index is the most common measure for the level of volatility in the US market and is charted below for the past 20 years. The VIX index averaged only 13.2 throughout calendar years 2016 and 2017, which is well below the long-term mean of 18.3. Since the beginning of 2018, the VIX has averaged 16.6, which is 25% higher than 2016 and 2017, but still below the long-term mean.
Perhaps this puts recent share market volatility in context. Whilst the market is more volatile than it has been in recent times, in context of longer-term data, it is actually not all that volatile. For example, there was almost twice as much volatility between 2008 and 2011.
I share this with you to make the point that it is important to focus on the data and facts rather than how markets feel.
Most of these issues are short term
The best way to deal with these often-exaggerated topics (as listed in the headline) that the media, in particular, love to talk about is to ask yourself whether these are likely to have had an impact 20 years from now. Mostly, the answer is no. Many of these “issues” are short-term in nature and really won’t have any impact on long term investment returns.
Markets and economies move in cycles, so recessions aren’t a new phenomenon for long-term investors. Government trade terms and strategies change, but markets and business always adapt. Perhaps the only factor that might have an impact in th
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