Are we heading into another financial meltdown - I'm worried - I have more than half my hard earned $2M portfolio in stocks and managed funds and I'm heading into retirement. I'm still 30% down from 2008. My banking friend thinks there will be another GFC bigger than the first and paraphrasing here, "the developed economies are in so much debt and the governments cannot provide bail outs next time round". What should I do? He reminds me of the Great Depression where it took 30 years for the stock market to get back to same point from its high. I don't want to sit all my money in cash, but I don't want to go through another GFC and see all that whittled away to nothing...
Top answer provided by:
Stephen Nielsen
The concerns outlined above are not unique, or unreasonable. With every month that goes by there seems to be another issue to worry about with the state of world markets. Unfortunately the negative sentiment is amplified by the unending “noise” that is synonymous with the short term nature of the news media. In a world where bad news sells, we are unlikely to hear of any positives when it comes to market rebounds or the millions that the share market grows by when these occur.
Just this year we have seen the media initially focus on the US which was supposed to commence the long awaited debt driven melt down; in the middle of this, a government shutdown once the debt ceiling was breached was next seen as the factor to blow the economy apart. When neither eventuated focus moved next to the debt woes in Greece, the slowing growth in China, then to heightened tensions on the Korean peninsula, then low growth in the developing world and now finally we’re back to the US and the impact that raising interest rates will have on the “green shoots” of the economy. It’s hard to believe, but we have had to endure all of these impacts on sentiment over the space of just one year. Roll on 2016!
The truth is, there are always things to be concerned about, important and in no way trivial things. There always has been. Our approach always has been to take a lot of time initially understanding your life goals and objectives and why these are important to you and how your investments fit. Key among this is to understand your investment preferences and aversions, your investment timeframe and tolerance for investment risk. If our strategy has been prepared with all of these factors considered, we can then take the “long view”; risks can be mitigated through the appropriate use of dynamic asset allocation and capital protection strategies keeping the initial objectives at the forefront of our thinking as time passes.
Dislocation in world financial markets is inevitable, we’ve seen it before and we will no doubt see it again. Given this, the “Long Game” can be incredibly difficult to play on your own. The real value of your adviser is determined through these difficult times; the real value is in keeping you on track to the initial plan, helping you avoid making rash decisions and guiding your choices as your personal and financial needs change across all market cycles.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.
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Comments13
"Someone should remind Robert that he doesn't NEED to be invested in "the market" - by which we all seem to be presuming he means shares... Plenty of cash is fine and necessary (the objective of all investing is to generate cash!) and sometimes holding mostly cash and just a few things you DO understand fully (unlike so many of the so-called "advisers" here who seem to think that selling managed funds is advice and worse, that a fund manager will go to cash - they won't, at least not until it's too late; or worse, that "AMP" will "look after you" - they won't, they look after their shareholders, but poorly). The key point to understand is that when someone has accumulated enough they don't need us to tell them to go and risk it all. They've worked hard to get to where the are now (the didn't accumulate "enough" by investing - they did it by working and saving; the investing part is as likely to have done as much harm as good, but it's function is to store not necessarily to grow) and we should be helping them avoid risks. Our role is to help them understand and tend to the end of life tasks such as estate planning and enjoying their capital. I remind everyone that most of your clients have more than you - for a good reason. This blatant sales rubbish disguised as advice is tiresome, dangerous and self-serving. It is also highly unprofessional..."
Philip, Perth 10:57 on 15 Dec 16
"Looks as though you're hell bent on clawing your 30% loss back but don't want to take a lot of risk as your banking friend is telling you Great Depression 2 is on it's way. Sounds exactly like me. Therefore choose your new adviser which excellent communication and fund managers that have a mandate that can hold 100% cash and acts when it gets down and dirty cos the rest will just hold these dirty stocks when they're sinking and tell you to wait patiently for them to bounce back. Long term strategy. Yeah right. Do you have another 5-7 years for that ??? Is $2M at 3% around $60k pa enough to buy caviar still ??? Losing a percent or two in return is nothing compared to losing the majority of your capital in this upside down market. Redo your Risk Profile truthfully this time !!!"
clevo400 16:22 on 12 Jan 16
"In Jan 2009 when we had at least !/3 of the allocated pension wiped off the investment. The Big Bear hit and many suffered the same fate. at first we were unaware of the event as we had assumed that the advisor would keep us posted . He didn't . Other investors told us . There was no warning .. Maybe we were misguided . Shortly after we were given a new advisor. Thank God that initially, we had been advised that I should take a Complying Pension to offset any advent of of a Big Bear market. We were unprepared and we had just been advised in early October to move some cash into several investments and money from one investment to another. Both of these investments failed totally with the crash and went into receivership (or something of the like) and were given permission to repay us at with a pittance (in instalments over some years) Both were well established with big reputations , but the particular investment was treated as a separate entity virtually ...which by law they were. These are pitfalls for the inexperienced , yet at times, not to be predicted by the experienced either. This the nature of the beast...up and down. One must know when to do what and I believe, have an experienced advisor. Everyone took a reduction in income - however most survived it . We had retired with relatively little - .compared to some, and few knew much about retirement and what would be in store (exactly). It was a minefield with many twists and turns and still is. Young ones should research well. Thank goodness that they seem better informed regards Super but there will be those who don't understand it. It was all new to us even though we tried to research it all.. Our generation were born before WW2.. I'm not sure what we are, but we are well before the Baby Boomers. It seems that we don't exist.There is no real label for us. We went through those times not knowing what would be our fate .Many of our men were at war. The Japs were looking to invade (they tried). The Trainees were blown up at Circular Quay. Everything was rationed. There was little of most things including toys..but we managed and we were happy to be free and people had work. Everything was tor for the War Effort. We even had.. movies. ...no TV 'till 1956. Things were tight into the mid 50'sand beyond. When we married there was nothing from the government except a pittance for Child Endowment... but it was appreciated. We have and reared and educated four terrific children . We paid over 17% interest when we finally bought own small home in 1969 and saved to built a larger home 6yrs later, for which we paid cash . We took simple holidays ...often touring as people still do. Our children are in their 50's with grown children.and what does the future hold for them? Despite having good incomes etc., will they be able to have enough to have a happy retirement ? We saw it when we were young and it is o.k. provided there is ongoing high employment. We had that and things worked ( generally). Things are rapidly changing now, to the point where it would be good if something of Retirement (i.e Super), were to be taught at school , even if only the basics ( to all students) Thank God for the idea of Super and how good is it that employers contribute as well....although I pity the small businessman in this matter. People should make it their business to research very early , and shop around . This is vital. We did , and still retirement is a a minefield . Bricks and mortar are good and very likely to be. and bonds too. We have not recovered a cent of our lost investment ...but we've had a reasonable income and we've managed well. Remember, one must have an experienced advisor and one should become very familiar with all aspects of retirement and options . Become involved --otherwise stay out ! Good luck.,good health and joy . Happy New Year to all. Diiversify , be patient and don't be too greedy. Please God that there be no more BIG Bears. Dee. "
Dee 01:52 on 04 Jan 16
"AMP has always looked after me. I've been with them for 30 years."
Chloe 22:07 on 23 Dec 15
"I had $3 million+ before 2008. I was always frugal with my money and wanted to leave inheritance for my grandkids. I now have just on $900,000 and feel like I have let them down. I am taking action, but I am 82 and don't want to spend the last years going through court cases. I feel let down. I don't totally understand what happened. I wasn't with a bank but someone who said they were independent from the banks. "
Jameel 22:05 on 23 Dec 15
"A lot of doomsayers out there - if we see another GFC, probably be the collapse of capitalism and the cash in your bank account will be worthless. Build a man cave, stock up the fridge with beer, a few year's supply of Heinz tin cans, a good king size bed for yourself and the wife and ride it out ;-)"
William 15:50 on 21 Dec 15
"What a lot of claptrap. Robert, your concerns are legitimate. The answers provided are straight out of the textbook and mean nothing. We need to sit down and discuss exactly what it is you are worried about. In my experience, you are probably not as worried about your $2M turning into $1M, as you are about a potential reduction in INCOME from what was rightfully described by you as a hard earned $2M portfolio. You need simple investments, not capital protected investments that add layers of costs. You need a cash buffer sufficient to allow you to not bother looking at markets on a daily basis - whether this be one, two or three years of income needs sitting in cash, we can work that out. You need to see exactly what you are investing in, so if the price falls you can rationally think about the companies you own and be comfortable they have a future. Above all, you need a strategic plan that prevents you from self-destructing your wealth. Risk profiles....long-term....cap and collar....Korean peninsula....long game....forget it. Let's get to the bottom of what you're really worried about, and address the issues simply and succinctly."
Mark 14:58 on 21 Dec 15
"Robert - there are ways to get market upside and limiting your downside...depending on your retirement timeline, your adviser should be exploring capital protection strategies - like cap and collar options or just simple put option strategies. Ask him/her to explain these to you and determine what you are comfortable with. Some of these options come at a cost, but may give you a peace of mind and help limit any fallout from any significant market disruption / dislocation."
Colin 10:00 on 20 Dec 15
"Hi Robert & all, I say to my clients use DCA - buy and sell at different times in the market cycle - use the economic trade clock to assist and buy when everyone is selling. Yes, diversify, spread across all asset classes however get your financial planner to pro-active in his service offer and use DCA and you will be in a better position then just buy and hold - and remember don't sell at the down turn. All needs to be looked at time. your risk profile and what you want to get out of the financial plan. Cheers Bill "
Bill 11:56 on 19 Dec 15
"Robert needs personal advice not a general discussion that was provided. He needs someone to sit down and ask what he wants, when and how much or to grab a piece of paper and document that himself as a personal financial plan needs to be tailored to an individual not to a rule of thumb formula. Due to the inability of an adviser to provide personal advice via the adviser rating discussion forum they were forced to provide the general answers they did and unfortunately this was not explained. How can personal advice be given when all that was provided was an amount and a comment that Robert was heading into retirement, more personal information is needed for advice to be provided. In retirement we need an income, so, how much income and for how long should be the basis of the discussion with Robert or his retirement plan. As long as what he has will provide the income he needs and by either including a portion of growth assets, say via a model portfolio that is set up in the appropriate risk profile, to ensure longevity of Robert's income, then he should be set for retirement. Yes we all hate it when our assets drop in value though to get there we would usually have had a rise over time and in the case of super have had the ability to add to our balance with tax concessions provided . The past is is gone, the present is when a plan is done, the future is what we plan for. Robert, I hope that helps and explains what you should be doing either by yourself or with a professional adviser to assist you. Kind regards and all the best for the Christmas and New Year season."
Mike 12:56 on 18 Dec 15
"No one can control what the markets are going to do, advisers accept that and focus expertise on the aspects they can control, primarily the asset allocation and exposure to riskier assets. Diversification across the asset classes becomes really important, particularly in reference to growth and defensive assets. This can be determined by understanding the clients income requirements from the fund, how much money they need to take out of the investment fund and when. Human nature is to be greedy and have their investments grow significantly, someone who has a $2 Million dollar portfolio and for example required $100,000 in income a year, does not need to have a large allocation to shares. I think of it this way if a person has an investment portfolio and 50% is invested in growth assets and 50% in defensive assets, then if the stock market goes down by 10%, theoretically the portfolio should only go down by 5%. In general, it may be appropriate to keep one or two years of draw downs in cash so a client is not affected by drawing down income payments in the event of a market correction. The expected drawings for the next 3 years could be in defensive assets and maybe only funds that will not be required to be withdrawn in the five years should be invested in shares, giving time for recovery if there was a market downturn. This is where a financial adviser can add value. Alternatively if a client is going to sleep over their investment in shares then maybe they should not have the exposure, or they should be looking at some annuity products, or guaranteed or protected investment which are available through some providers and advisers. "
Jeff 12:56 on 18 Dec 15
"reading through the answers of these so called Platinum Advisers simply proves that it is a case of a blind leading the blind; it sounds like they haven't got a clue of what they are supposed to be knowledgeable about nor have any understanding of fundamental economics. They are merely selling the old "long-term investment in the market" adage, skillfully avoiding any responsibility for persuading their clients to invest at any old time, so that they get paid for doing apparently little. What they are saying to Robert is shit happens, and get used to capital losses, and if you learn to focus on the long term, then it will help you forget your current pain and the losses become easier to bear... Robert still hasn't recovered his lost capital after 8 years.... what do these advisers define as long term anyway??? I wish salespeople would call themselves just that.... You don't see pharmacists calling themselves surgeons..... Good luck to all Roberts out there.... "
John 12:08 on 18 Dec 15
"Robert a great question and a relevant one. The above advisers all touched on very relevant points including to be diversified and to obtain sound advice and a relationship with an adviser. From our perspective we think that you are better to position your portfolio against downside risk than be optimistic about the future and position accordingly - why? because if your portfolio is inherently defensive and there is another GFC type event you will lose less money which will help you compound future returns....but if you position your portfolio more optimistically and thus increase your exposure to equities (as you invest in equities if you believe that the future is bright), you may end up losing a lot of money and reduce the benefits of compounding returns...given that a 50% loss needs a 100% return to recover to the portfolio's previous pre-loss position, and that your investments may not actually recover (eg. after 8 years the Australian Share Market is yet to hit Oct 2007 levels). Importantly your portfolio should not rely on long only exposures that only work when markets are rising and nor should you take an index approach to investing. Proper diversification comes from investing in a range of strategies and asset classes with various correlations...good luck and all the best and a very Merry Christmas and NYE to you."
Fergus Hardingham CFP 11:50 on 18 Dec 15