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A tonic for turbulent times: Nine tips for investing

Dr Shane Oliver has witnessed numerous economic cycles and market events. Here are his nine tips for investing amid the current market turbulence.

Dr Shane Oliver, AMP’s long-standing Chief Economist and member of the AMP Investments team, has witnessed numerous economic cycles and market events in his more than 35 years as a leading economist. His Nine Tips for investing are particularly relevant amid the current market turbulence.

1. Compounding

Compound interest is magical! The value of $1 invested in 1900, allowing for the reinvestment of dividends and interest along the way, would now be worth $243 if invested in cash, $901 if invested in bonds and $757,136 if invested in shares. If you want to grow your wealth, you should have exposure to growth assets like shares and property.

2. Diversify

The best performing asset class each year can vary dramatically – last year’s top performer is no guide to the year ahead. Have a combination of asset classes in your portfolio. This particularly applies to assets that have low correlation, i.e., that don't just move in lock step with each other. A well-diversified portfolio is less volatile.

3. Understand risk and return

Put simply: the higher the risk of an asset, the higher the return you should expect to achieve over the long-term, and vice versa. There is no free lunch, and you should always allow for the risk and return characteristics of each asset in which you invest. If you don’t mind short-term risk, you can take advantage of the higher-returns growth assets offer over long periods.

4. Time-in, not timing

In times of uncertainty its temping to try to time the market. But without a proven asset allocation or stock picking process, it’s next to impossible. Market timing is great if you can get it right, but without a process, the risk of getting it wrong is very high and can destroy your longer-term returns. Selling after big share market falls can feel comfortable given all the noise is negative but it locks in a loss and makes it much harder to recover from.

5. Time is on your side

Since 1900 there are no negative returns over rolling 20-year periods for Australian shares. Short-term share returns can sometimes see violent swings, but the longer the time horizon the greater the chance your investments will meet their goals. In investing, time is on your side, so invest for the long-term.

6. Remove the emotion

Emotion plays a huge roll in amplifying the investment cycle, both up and down. Avoid assets where the crowd is euphoric and convinced it’s a sure thing. Favour assets where the crowd is depressed, and the asset is under-loved. Don’t get sucked into the emotional roller coaster.

7. The wall of worry

It seems there’s plenty for investors to worry about at the moment. While this is real and creates uncertainty, in a long-term context its mostly noise. The global and Australian economies have had plenty of worries over the past century, but they got over them. Australian shares have returned 11.8 per cent per annum since 1900. Turn down the noise around the short-term movements in investment markets.

8. Look less

Day by day it’s pretty much 50/50 if share markets end up or down. On a monthly basis, they finish up two thirds of the time. On a calendar year basis, using data back to 1900, this increases to 80 per cent. The less you look at your investments, the less you will be disappointed, and the less likely you’ll sell at the wrong time.

9. It’s cyclical

The higher returns shares generate over time relative to cash and bonds is compensation for periodic short-term setbacks. Recognise that these setbacks are part of the cycle. Don’t get thrown off the higher returns that shares and other growth assets provide over the longer-term. Cycles are a fact of life and, while they don't repeat precisely, they rhyme.

First published on the Firstlinks Newsletter. A free subscription for nabtrade clients is available here.

Dr Shane Oliver is Head of Investment Strategy and Chief Economist at AMP and AMP Capital. Analysis as at 21 July 2022. This information has been provided by Firstlinks, a publication of Morningstar Australasia (ABN: 95 090 665 544, AFSL 240892), for WealthHub Securities Ltd ABN 83 089 718 249 AFSL No. 230704 (WealthHub Securities, we), a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). Whilst all reasonable care has been taken by WealthHub Securities in reviewing this material, this content does not represent the view or opinions of WealthHub Securities. Any statements as to past performance do not represent future performance. Any advice contained in the Information has been prepared by WealthHub Securities without taking into account your objectives, financial situation or needs. Before acting on any such advice, we recommend that you consider whether it is appropriate for your circumstances. 

About the Author

Firstlinks is an investments newsletter providing content written by financial market professionals with experience in wealth management, superannuation, banking, academia and financial advice. Authors are investors and market practitioners with long careers in senior management positions. Firstlinks shares both their knowledge and their battle scars. Our community of 80,000 users discusses ideas from an informed and impartial point of view. Firstlinks was acquired by Morningstar Australasia in October 2019 to enable an expansion of its services and audience.