IT PAYS WHEN INVESTORS DON’T PANIC
South-west investors who stayed calm and rode out recent stock market slumps have been repaid with the single best week in more than four years.
Last week’s market closed almost six per cent up since Monday, August 24 – a day that some analysts dubbed ‘Black Monday’ and resulted in widespread panic selling.
Fennell West partner Ryan Fennell said the recovery was always going to be swift and last week had justified calls at the time for investors not to panic.
“We saw another sharp drop on Tuesday, September 29 and more panic selling, but just like the event in August, the market recovered within a couple of days,” he said.
Business partner Shane West said those that did sell at the bottom of the market on August 24, fearing further market deterioration, had harmed their finances.
“If you believed the hype surrounding the drop, sold out of your shares and placed the money in a bank account – your investment would have risen 0.41 per cent – based on two months at 2.5% interest,” he said.
“Sharp drops to the market will continue to be reported on the evening news. We would just reiterate that reacting to the hype with knee-jerk panic selling is unwise.”
“If you didn’t panic and stayed in your investment, you would have seen an average increase of 5.88 per cent in capital value, plus dividends – which in some cases is an extra 2.5 per cent.
Mr West said even with a portfolio of $5000 in shares, the difference during the same period was a return of $20.50 if you panicked and sold, or $294 if you stayed calm and held onto them.
Mr Fennell said a range of real and perceived influences would continue to impact the stock market. He said the Australian economy was strong and investors should take a long-term view of their holdings and focus on their end goals.
“In real terms, someone with $200,000 in investments or superannuation who sold down and banked the money has earned $820 in interest. Someone who held onto their same investment has just earned $11,760 – plus dividends.”
“We understand that retirees or pre-retirees who are a few years away from that stage in their life get jumpy when these steep declines occur, but making hasty decisions in the spur of the moment can undo your hard work,” he said.
“Our market is impacted by a number of things, which include whether or not the US increases its interest rate to slow down their economy and factors like the ongoing uncertainty in China.
“Our ability to bounce back in the Australian market is very good, as the underlying fundamentals in our economy are strong.”