Given this market “Investing for Retirement”
Glenn, I’ve got cash sitting around and know that I need to invest it but I’m concerned about current market levels.
Should I invest or wait for a dip in the market. I’m concerned I might have left it too late.
After all, we’ve had such a great period and we all know investment markets move in cycles.
I’ve been fielding these questions for some time.
How do I invest, given this market?
Should I invest, or do I sit on the fence until the investment markets cool off and invest at lower levels?
You may also be asking the same question scared of losing thousands or hundreds of thousands of dollars if something goes wrong.
All that media HYPE? or financial pornography as I like to call it…
The doom and gloom newsletters are out in full force with all things the world is about to end while sprouting they have the answers.
When’s the next recession coming is constantly being sprouted.
What impact are the trade wars going to have on world markets?
US interest rates are rising.
Ours are decreasing.
The US market is at all-time highs.
Our market is approaching all-time highs.
If you have money in cash it’s earning less than inflation. It’s actually going backwards.
All these headlines are catching your attention. It’s enough to confuse and scare the heck out of you if you were thinking of investing.
It doesn’t have to be that way…
With all this noise and confusion what do I do?
Do you have money sitting in cash waiting for that perfect time to buy? Would you actually invest when markets dip? Maybe, maybe not, after all, how would you know?
Have you just been holding onto cash and you just haven’t got around to investing it?
Whatever your position and whoever you listen too you are always going to hear competing sides of the argument.
You’ll side with the one that makes more sense in your head. The one that agrees most with the conversation going on in your head.
But here’s the thing, there is no perfect time, I’ve tried. I’ve also been in this business long enough to know that those who start playing around with timing lose most of the time.
Let’s remember that this is a tactic, a tactic is what helps you get to your destination. It’s absolutely the wrong place to start.
But it’s the first thing you see in the media. They are all trying to sell you something.
They want you to buy their solution. Buy their investment solution, buy their special investment that will protect you in down markets or the new shiny investment solution.
They are all geared towards solving your biggest fear, losing money.
But guess what, their’s no silver bullet out there.
No matter what market and how much money we have we’re always going to be worried about what we can’t control.
The best way to invest “given this market” is to remain diversified and manage your balance sheet, not just your investments.
Remain flexible enough to adjust along the way.
Which Market are you talking about?
It’s important to determine which investment market you are talking about.
It is the US, Europe, Australia, Property or Bond market.
Since 2009 this is how investment markets have performed:-
Cash – 3.1%
Australian Bonds – 5.2% pa
Australian shares – 9.1% pa
International shares – 9.6% pa
US shares – 12.9% pa
International Property – 10.3%
Australian Property – 10.4%
**All returns are till the end of 30 December 2018. Taken from Vanguard data.
It’s important to understand where your money is invested. Don’t be overconcentrated.
Notice on the list above the Australian share market has the 5th best investment on the list.
Most Australian’s are concentrated in Australian shares. Fair enough given we live in Australia.
However, it’s important to know the Australian share market represents less than 2% of the world’s investment universe.
Diversification is so important combined with an investment strategy that is flexible.
At Jigsaw we have a number of approaches we apply for clients depending on their unique requirements.
For some, it’s about making sure we achieve market returns with low costs and consistent rebalancing. Risk is managed and investment costs kept low.
For others, they want a little more flexibility and know when storm clouds start forming, their investments are going to adjust to minimise the damage.
So, Glenn, should I invest “given this market” and if so when & into what?
The million dollar question. My response, it depends.
It depends on the stage you are in relation to your retirement plans.
It depends on your current financial resources.
It depends on what you are looking to achieve.
Are you 10 yrs off retirement or just entering retirement?
It depends on what your foreseeable regular and one-off costs are.
It depends on so many factors, it’s going to different for everyone.
However, what I can do is give you the framework we use with our clients to invest with confidence and know they’ll be ok no matter what the market does.
Remember that it’s a marathon you are preparing for, not a sprint, therefore implement the right approach for the journey you are on.
Investing at any time in the market cycle!
Don’t forget this is a tactic.
Before we can ever dive into tactics and strategies you need to understand the lifestyle you are working towards.
We need to drill into every plan individually to answer these exact questions.
Jigsaw’s 3 step investment flow system.
We are 100% focused on protecting the lifestyle our clients have worked so hard for. So whatever is implemented must be flexible enough to adapt to changing environments.
Understanding the type of lifestyle you are working towards and the funding needs for that lifestyle is the starting point.
From there we implement the system to protect our client’s lifestyle.
#1. Retain enough cash to fund emergencies. Sounds simple but many neglect it.
#2. Retain enough cash reserves to fund the next 12 to 18 mths worth of once-off capital expenses. This could involve the purchase of new cars, caravans, renovations, overseas holidays etc.
#3. Sufficient cash reserves, generally inside super, to fund approx 2-3 years worth of income in retirement.
This may sound extremely simple, but many don’t know how to implement it or they go about it completely the wrong way. I see many getting this simple step wrong.
If you are still some way from retirement it’s a similar process. Until you know the above it’s difficult to make a decision on how, when and what to invest in.
How do I invest in this current market?
Once we know the above it generally becomes extremely clear on how we invest for clients.
No one and I mean no one knows what investment markets are going to do.
We know they are going to go up, go down and go sideways. We just don’t know exactly when this is going to happen. If we did I’d be on an island in the Sth Pacific sipping a pina colada.
That’s why we apply a strict investment implementation program for clients.
We’d look at the above and account for that.
The next step is to determine the level of risk clients are taking and what’s the minimum level of risk required to get the job done.
The final step would be to determine over what period we’d invest the money. For some it’s 6mths, others it might be 18mths.
It’s what we call dollar cost averaging. Investing amounts on a monthly basis over a period of time.
Allowing you to take advantage of periods when the market is down and when it is up.
It takes the risk out of getting the timing all wrong.
If markets happen to crash you have the flexibility to bring some of those investments forward.
The point to remember here is that you are investing for a 30 yr plus period. Short term fluctuations are going to seem like a little dip in the long term journey of your investment.
Market fluctuations are one uncertainty we cannot predict.
However, follow a disciplined approach designed for you to protect your lifestyle and you will be rewarded without the overwhelm.
Sure, you might still be nervous about what investment markets are doing, it’s human nature, but you’ll rest easy knowing you won’t have to compromise your lifestyle.
Your plan will account for all that.
Hope that’s been useful…
PS. Sitting there wondering whether you’ll be ok in Retirement?
Maybe you’re wondering whether you will run out of Money in Retirement.
Do you know if you’ll have enough to maintain your lifestyle in Retirement?
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Make it a great Life!
Challenging the Status Quo!
Glenn Doherty – CFP – Founder & Financial Organiser at Jigsaw Private Wealth
Advice Disclaimer: Any reference in this publication to the provision of advice refers to advice of a generic nature, and should not be taken as product or investment recommendations. Before any action is taken based on the information provided, independent financial advice from a licensed financial adviser should be sought. Financial Freedom Project Pty Ltd ATF GA & DC Doherty Family Trust Trading as Jigsaw Private Wealth is a Corporate Authorised Representative of Exelsuper Advice Pty Ltd. The information contained in this publication is of a factual nature only and is not intended to constitute financial product advice. Information is current as at June 2018. This is an online information blog. It does not imply an offering of securities.