November represented the third consecutive month of negative returns for the Australian share market, with the All Ordinaries index falling by 2.8% to close the month at 5,749.3 points. The Australian Dollar gained by 3.2%, with 1 Australian Dollar currently buying 73.06 US cents.
As expected, the Reserve Bank of Australia (RBA) board kept the official Cash Rate on hold at 1.50% per annum. The RBA board will meet again on Tuesday this week with no change in the official Cash Rate expected, before breaking until February 2019.
Global shares provided mixed results in the month of November, with the United States' Dow Jones index gaining by 1.7%, the London FTSE falling by 2.1%, the Japan Nikkei 225 gaining by 2.0% and the Hong Kong Hang Seng Index gaining by 6.1%.
The volatility in global markets is still attributable to the same key issues, namely: the United States’ Federal Reserve stance on interest rates, US-China trade restrictions and the UK Government working its way through “Brexit”.
Since the start of September this year, the Australian share market has now fallen by more than 10%. In volatile times such as these, it is worth putting the recent share market performance into context.
As shown above, over the last 10 years the Australian share market has experienced a period of similar negative returns on no fewer than 6 occasions. Indeed, in February this year, similar negative results were recorded with the same key issues stated as the cause for the fall. The bounce-back in share market values was swift.
Looking back over the last 10 years there has been a string of macroeconomic risks ever present for investors. Think no further than the US housing crisis, the global banking crisis, the Greece Debt Crisis, the Eurozone crisis, the United States' Federal Reserve “printing money”, a slowing of Chinese economic growth, North Korea’s nuclear weapon testing, and more recently the Royal Commission into Financial Services.
Any one of the above events could have caused an investor to question their strategy in having some exposure to the share market. However, when including dividend income, over the last 10 years the Australian and United States’ share markets have provided a return of more than 8% and 10% per annum respectively.
In context of the above, investors thinking of allocating all of their funds to “cash” now, are perhaps missing the bigger picture. Australian “bank bills” have provided a return of approximately 3.15% per annum over the last 10 years – less than 40% of the share market return.
Had you allocated a $500,000 investment from 50/50 Australian and United States' shares to cash 10 years ago (because you were “fearful” of any one of the macroeconomic risks), then you would be worse off today by around $500,000 – even when allowing for the 10% decline in Australian share market values since the start of September.
Sure, I have had several people tell me in the past that they will allocate to cash now, and then buy-back in once things “settle-down” or when values are “cheaper”.
However, the trouble is that finding someone who can precisely predict the future is not an easy task… and when I do find them, I may as well just ask them for the lucky numbers for Thursday’s $12 million Powerball jackpot rather than the exact day that the share market will “bottom out”.
For more information, please contact Ryan Love on 1300 856 338.
This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.