2018 has been a mixed year for investors, with some gains, and some losses. But are we at the end of the growth cycle… for now?
Market Cycles and the end of the Growth Cycle
We’ve seen a complex economic environment with geopolitical and trade uncertainty, a change of PM (again,) a Royal Commission or two and the possible burst of the crypto-bubble. Pretty easy to say, there’s been plenty going on that can affect markets, your investments and long-term retirement savings.
Markets traditionally work in cycles of around 9 years and we’re now at the very pointy end of the longest bull run in history. Bear markets traditionally last for less than 1.5 years. So, somethings gotta give… right? Does this mean the end of the growth cycle?
Looking forward, 2019 is likely to be characterised by further volatility and a difficult environment for shares.
So what’s next? And what should you do?
Many indicators are pointing to a potential downturn in 2019 in developed markets, so is now the ideal time to position for a lower growth environment and focus on alternatives and the more stable, cash flow producing investments? Or… the end of the growth cycle! Possibly, so what are my options?
There’s four main choices you have…
- Do nothing, hold the course. You understand that markets fluctuate, that’s just a part of how they work. Your goals and risk profile remain the same and you’re committed for the long term. No worries! Review your statement, throw it in the file and have yourself a cuppa.
- Panic! Sell out and pop everything into cash… tho chances are, you aren’t great at picking the bottom of the market and won’t be brilliant at deciding when to ‘get back in.’ You’ll possibly miss some growth options too… As someone wiser than me once said, “it’s time IN the market that counts, not timing the market.” Have a chat with your adviser before doing anything too rash. Remember, you only crystalise gains and losses when you make the sell!
- Sell down part of your portfolio into cash to make way for some future buying opportunities, in case things go pear shaped and you can take advantage of the potential volatility. Again, schedule time with your adviser to work out if this option is for you, and which funds you’re happy to sell.
- Things have changed… Contact your adviser! See if you are still happy with your existing Risk Profile Questionnaire and update your current circumstances. You may need to rejig what you currently have, arrange a switch or two of growth vs defensive stocks and be reassured to hold steady or change to a different profile. Do you now have a moral bent towards more socially responsible investing? Do you have a greater or lower income requirement? Has your family structure or debt level changed? All good triggers to visit an adviser and review.
Australian retail, housing and banks to suffer*
Australia’s retail sector is already weak and there are indicators showing it’s unlikely to improve any time soon, with lower motor vehicle sales growth, falling house prices and money supply growth at a 26-year low.
With State and Federal elections slated over the next six months, keep a close eye on consumer confidence, which tends to be timid ahead of major elections. Falling consumer confidence, tighter lending standards and the Reserve Bank of Australia’s reluctance to cut interest rates further, mean we’re likely to see house prices continue to fall nationally in 2019.
Defensive stocks likely to see gains*
The 2018 drought across Australia has seen many agricultural stocks fall. While a rebound in crop volumes is not likely to hit until 2020, 2019 may be the year to pick up some agricultural stocks at the bottom of the cycle. In times of volatility, other defensive sectors to consider are telecoms, utilities, healthcare and staples.
Investors may be in for a bumpier ride in 2019. However, those with well-positioned portfolios should still be able to capitalise on some attractive income and growth opportunities.
If you have any questions, please don’t hesitate to get in touch. Our office in Robina is always stocked with tea, coffee, hot chocolate… or even a wine and we’d love to see you and update at any time.
* Source: Desktop Broker