Market falls that were occurring

I was meeting with a long-term client, and naturally we discussed the stock market falls that were occurring at that very moment, and we began reminiscing about the panic surrounding investments during the Global Financial Crisis (GFC). The stock markets were in freefall, people saw their superannuation values fall and the media was making sure we were all well aware of the what they had dubbed the “financial crisis”.

At the time my full-time job became reassuring people that sticking to their long-term strategies was sensible albeit difficult. I remember doing presentations, almost on a weekly basis, discussing investor behaviour and encouraging people not to panic. Most of my clients thankfully stayed strong and are now reaping the rewards.

We are now a little over 10 years since the beginning of the GFC and about 9 years since the stock market bottomed out.  We can now look back with the benefit of hindsight. The average 10 year returns for balanced funds are generally sitting between 9-10% according the Mercer research. This includes the period of the greatest loss during the GFC (although not the entire GFC). This is above long-term averages for a balanced fund.

Unfortunately, many investors missed out on a lot of this sustained period of above average performance as they exited their investment strategies for safer options during the GFC. Worse still, most moved from growth assets to cash and fixed interest investments. These investments have had below average returns for quite some time as well.

The oldest cliché in investing is the old, “buy low, sell high” but, when push came to shove in the GFC, fear got the best of a lot of investors and they did exactly the opposite. Good quality Australian stocks plummeted, despite the underlying company remaining relatively strong. The Commonwealth Bank (CBA) shares fell to $23.90 per share on 23/1/2009, considerably less than half its value pre GFC. Hindsight tells us that selling Commonwealth Bank shares at that price was a huge mistake. The CBA now trades at approximately $80.00 per share and over the last 9 years since this low has distributed $30.93 in dividends per share. This year alone the expected dividend is $4.20 per share.

Although I have no idea when it is coming, there will definitely be another “crash” – the media will probably give it a catchy name. When it does come, it is important to remember the lessons of the GFC.  Stay solid with your investment strategy and remember that if the underlying asset is strong, selling at the bottom of the market makes no sense.  Don’t be the person that sold Commonwealth Bank shares for $23.90.