Hungarian-born illusionist Harry Houdini was famous for his great escapes. So was American actor Steve McQueen, at least in his onscreen role in the 1963 film classic The Great Escape.
And it's somewhat fitting that both men were born on March 24, because that's also the date in 2020 when global share markets began what could arguably be described as one of the greatest escapes in history.
The scene had been set over the previous few weeks as the rapid spread of COVID-19 fuelled panic on international share markets. Like they usually do, markets moved very quickly.
In the space of just a few weeks, after having hit an all-time record high in late February 2020, markets went into freefall.
The Australian share market, caught up in the maelstrom, dropped more than 35 per cent over about 20 trading sessions to reach its lowest level in more than a decade on March 23.
But, almost as quickly as it all started, markets suddenly began to rebound.
The turning point was March 24 last year with the endorsement of a US$2.2 trillion coronavirus economic rescue package announced by the former Trump government – the largest in U.S. history.
Share markets have been steadily moving higher ever since and, one year later, the Australian share market is more than 50 per cent above its 2020 low point. The U.S. market is also trading at new record highs.
The accelerating rollout of COVID-19 vaccines, the huge monetary stimulus programs launched by many countries to offset the economic impacts of the virus, and record low interest rates, have acted as a safety net for financial markets.
If there's one key investment lesson to be learned from the events of the last year, it's that financial markets are unpredictable.
Few would have seen last year's sudden share market downturn coming, let alone the start of the market's rebound just a few weeks later.
Picking the 4,359.60 S&P/ASX 300 Index low point of the Australian market on March 23 last year would have been pure luck.
Even more unpredictable has been the market's growth trajectory, to a level where the Australian market is now very close to having recovered all of its losses from early last year. The U.S. market has already achieved that.
Record capital inflows into exchange traded funds (ETFs) and unlisted managed equity funds are a strong indicator that investor confidence in the prospects for equity markets is very strong.
In reality, trying to time markets is virtually impossible.
For long-term investors, the events of the last year have only reinforced the fact that market downturns, no matter how long they last, are invariably followed by market upturns.
Just being invested in the market, and making ongoing contributions, will ensure you never miss a beat.
If we look back on investment returns over the past 30 years going back to 1990, what emerges is a very clear picture of growth across all major asset classes.
The volatility in markets over time is also clearly evident, with the period including major downturns such as the sharp market correction that led to the prolonged Global Financial Crisis between 2007 and 2009.
The chart above clearly illustrates the sharp downturn in global financial markets last year, but also the strong rebound from early 2020 through to the end of December.
Looking back over the past 30 years, it also shows that all asset classes have provided consistent growth over time, and some much more than others.
Taking the Australian share market, for example, up until the end of December it had delivered an average return of 8.9 per cent per annum over three decades, assuming all distributions had been fully reinvested.
Using a base amount of $10,000 invested back in 1990, a person holding Australian shares through an ETF or managed fund tracking the whole Australian market would have turned their initial holding into more than $141,000. That's a total return of well over 1,000 per cent, excluding any fees, expenses and taxes.
A $10,000 investment into U.S. shares over the same time frame would have returned 10.3 per cent per annum and be worth more than $200,000 using the same assumptions as above.
Even cash, the lowest-returning asset, would have delivered a total return of 5.2 per cent per annum and turned $10,000 into almost $50,000 with the benefit of compounding returns.
That's the ultimate power of being focused on time in the markets, instead of trying to time markets.
Having exposure to a range of asset classes to achieve broad diversification also reduces concentration risk and helps smooth out returns.
That's because the returns performances of different asset classes are constantly changing in line with market movements.
Markets will rise and fall, but it's all about staying the course, leveraging the combination of compounding returns and low investment costs, which together really add up over the long term.
After such a volatile investment year, it's abundantly clear that time in markets will always win out over trying to time markets.
By Tony Kaye
Senior Personal Finance Writer, Vanguard Australia
23 Mar, 2021
BEc (Acc), MBA, CPA, FFin
David has been in the Financial Services Industry for nearly 30 years. He was one of the founding Directors of the successful Financial Planning and Stockbroking Practice, Henderson Gregory Forrest, for a decade. Prior to that, he held senior roles in companies such as ING, KPMG Accountants and AMP. David was previously Chairman of OAMPS Superannuation Trustee Board and currently serves as an independent Board Director for several companies.
David’s extensive experience in all forms of superannuation, including Self Managed Super Funds (SMSF), Defined Benefit Funds, retirement funding through Account Based Pensions, stockbroking with a focus on Direct Share Investment, Taxation/Remuneration Planning, Centrelink, Aged Care and business management, equip him to advise expertly on all aspects of Financial Advice.
Those with a particular interest in superannuation/SMSFs, direct share investment, salary packaging or applying for the Centrelink Pension will find his knowledge and ability in formulating and implementing creative, logical and simple wealth creation strategies a valuable asset.
David maintains a strong personalised client service focus, providing tailored solutions for clients.
David Forrest is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846
Business Finance Manager
B Bus (Acc), CPA
Michelle’s career has spanned across the Financial Services, Retirement Living and Aged Care industries working in the private sector, not for profit and more recently with the state government for over 20 years. Her experience extends to many facets of the financial services industry, having worked in superannuation administration, technical support and financial planning practice administration.
Commencing with AMP and subsequently working in commerce and accounting roles with companies such as Brambles, Adelaide Bank Retirement Services, ECH Inc and SA Health and Wellbeing, Michelle returns to financial services after working in practice financial management at Henderson Gregory Forrest. This wide range of experience from senior accounting and management roles has provided Michelle with a strong background in business administration.
With an astute financial acumen and keen interest in business improvement strategies, Michelle ensures the smooth running of the Integrity Financial Advisory practice providing valued management support to our personalised client service focus.
B Com, Dip FP
Darren joins the Integrity team as a strong technical specialist with almost 20 years’ in the Financial Services industry. He has extensive experience advising clients on how to build and protect wealth, prepare for retirement and retire comfortably.
Commencing with advising clients on direct equities for over 10 years at Baker Young, Tolhurst Noall, and ABN AMRO Morgans, his career expanded to providing holistic client advice, having operated his own financial services licence and company. Most recently having worked for a 'Big 4' bank, he has welcomed the more personalised ‘client first’ approach that is evident at Integrity Financial Advisory.
With a deep understanding of investment markets, he is appropriately qualified and authorised to provide direct share advice, as well as superannuation/SMSF advice, encompassing both investments and insurance.
Meticulous in his approach, he aims to deliver quality outcomes for clients by understanding their financial situation and needs before providing advice which is central to our advice process. Darren supports David in tailoring solutions for all client financial advice needs.
Darren Chalk is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846
Client Service Manager
Natasha commenced working in the financial services industry in June 2008 and is a new addition to the Integrity team. During the past 11 years, she worked closely with advisers providing administration support in a share broking and financial advice business.
Having successfully completed her RG146 accreditation in securities and managed investments and continued her studies to complete her competency in Superannuation, Natasha can ably assist with all aspects of fixed interest, cash management, portfolio administration, direct shares and client advice implementation.
Natasha takes time to ensure she understands our client’s financial goals and needs and believes in creating, preserving and utilising wealth through effective financial management as a key objective in helping clients.
Client Service Manager
Kelly has worked in the Financial Services Industry for over 10 years and has supported David since 2013. Kelly’s primary background is in customer service and administration.
On starting in the industry, Kelly initially focused on direct shares, stockbroking administration and client liaison. Since moving to the Client Service Manager role, Kelly has developed skills encompassing all aspects of financial planning including client advice implementation and term deposit management.
Kelly’s experience in the direct share environment, especially management of estates, provides a key part of the direct equity expertise in Integrity’s Client Service Team.
Returning from Parental Leave following the arrival of her second child, Kelly has developed further honed multi-tasking skills after juggling the demands of a growing family.
Client Service Manager
Jasmine has worked in the financial services industry for over 12 years in all areas of client administration, working with David since 2013.
Jasmine has extensive knowledge and experience in client service including implementation of advice, portfolio reporting, assisting with the establishment of Self Managed Super Funds (SMSFs), term deposit management and a long history of helping clients with their enquiries.
Jasmine’s attention to detail, yet gentle approach, means she is able to solve the trickiest of questions for our client community.
Jasmine has gained her Certificate III in Financial Services qualification.
Client Service Manager
Merrilyn has worked in the financial services industry for over 11 years in all areas of client administration, and is a new addition to our client services team, returning from Melbourne to join the team in June 2019.
Merrilyn has extensive knowledge and experience in client service including implementation of advice, managed fund administration, assisting with the establishment of Self Managed Super Funds (SMSFs) and process improvement for the previous practices she has worked with. Merrilyn’s experience with direct shares constitutes the other part of our administrative support for direct equity investments.
Merrilyn’s warm and caring nature continues to endear her to our clients and she has already established herself as a valued member of our team.