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Sharemarket – Is there reward for risk?

In recent weeks we have seen a significant increase in volatility, with share markets around the world having significant dips, with the rises being a little less frequent.

Is this a cause for concern?

We would all prefer not to have them but we must remember why we are invested in shares as an asset class – the risk return trade off.  We invest in shares as we know over the long term they will likely be the best performing asset, whilst in the short term there will likely be significant volatility.

Over the 30 year period to June 2014, the Australian share market has returned on average 11.8% pa.  If you had invested $10,000 in June 1984, it would now be worth $283,830.00

However, this 30 year period includes the following world events:

• 1987 stock market crash
• 1991 Gulf War
• Collapse of the Baring Bank in 1995
• 9/11 terrorist attack and Iraq war in early 2000’s
• GFC 2007

This period also included asset bubbles including the dot com boom.  We are only human and therefore we tend to forget lessons from history and let present events have far too much influence on our thinking.

Not that we shouldn’t be vigilant…a sit and forget strategy is not the answer.  There is constant change which may require a change to your financial strategy, including changes to your personal situation (a life event), changes to legislation or changes in the economy.

A knee jerk reaction is not the solution, but a considered review in the context of your long term plan is.

Aaron McCracken
Senior Financial Adviser
aaron.mccracken@mckinleyplowman.com.au

For a complimentary “financial health” review, please contact McKinley Plowman on 9301 2200.

written by:

McKinley Plowman