2019 was an eventful year for the world; for politics, for markets, for the advice profession; and for you.
Last year this time, markets had been through a material correction – which bottomed on Christmas Eve. The worst performance for the 24th since 1930. The outlook was grim, and a US recession seemed inevitable.
What a difference a year makes. The 1 year performances below were on no-one’s forecasts. (We have included 3, 5 and 10 year returns as well).
Some key takeout’s from the above:
- Time is the greater healer of risk (volatility).
- An excessive Australian investment home bias (lack of diversification) has come at a significant cost.
- It is pointless trying to time markets.
Politics added to the turmoil throughout the year – and heightened the perception of risk:
- The prospect of a Labor victory in the Australian election cast a pall on local markets, which surged following a surprise Coalition victory.
- Trump’s comments on his Tariff War with China caused market volatility in May and August; and his sudden move toward a more constructive approach made a positive contribution to the markets in September – and again more recently.
- An uncontrolled Brexit loomed large in August / September, and now appears to be yesterday’s news – following the Conservative’s overwhelming victory last week.
- And Santiago, Peru, Hong Kong, Beirut, Tehran, Paris etc. all made their contributions.
Now, we do not suggest that markets will continue to perform as before. Whilst the economic outlook appears much better than it did 6 months ago, this is not time to be seduced by optimism. One of the most important contributions we can make to our clients, is to balance the waves of pessimism and euphoria that constantly threaten to overwhelm even the best investors. If one had capitulated last December – and exited markets – one would have lost the benefit of the subsequent run-up in markets, and undermined the confidence necessary to get back in.
Our view remains, being focused on and clear about the level of investment risk necessary to achieve your financial objectives.
The regulatory environment has changed the financial services industry irrevocably. You may have noted the Hayne Report on the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. We agree that the imbalance of market power in favour of the Banks, IOOF and AMP; and the knowledge imbalance in favour of advisers – over private clients – has led to a level of unethical behaviour which has resulted in many individuals having their financial situation significantly impaired – if not destroyed.
The advice industry is transforming into a profession – with the new Financial Adviser Standards and Ethics Authority (FASEA) establishing a statutory Code of Ethics, which comes into effect 1 January 2020.
As Chartered Accountants Paul and Brian have each been bound by a professional Code of Ethics for over 30 years, and have consistently had as our purpose the objective of helping our clients. We take great satisfaction from helping you realise your goals while earning an appropriate return for the effort we put in, the risks we take, and the value we add.
In substance, we already comply with the new statutory requirements, but the form of our business and how we do things will be affected.