October Insights – 2023
Markets ended the second quarter more anxious than they started, however it’s important to realise that while the ASX200 hit multi-month lows in September (and there remain legitimate risks to the outlook), underlying fundamentals remain generally robust.
Although there are reasonable concerns about a future economic slowdown, recent economic data remains solid. Employment, consumer spending and business investment remain resilient. While a future economic slowdown is certainly possible given higher interest rates, the actual economic data is clear: It isn’t happening yet. Fears that inflation may bounce back are also legitimate, given the rally in oil prices. But the Reserve Bank of Australia, The US Federal Reserve and other central banks typically look past commodity-driven inflation and instead focus on “core” inflation.
Finally, regarding monetary policy, the US Federal Reserve’s historic rate hike campaign is nearing an end. And while we should expect the Fed to keep rates “higher for longer,” high interest rates do not automatically result in an economic slowdown. Interest rates have merely returned to levels that were typical in the 1990s and early 2000s. Yes, the risk of higher rates causing an economic slowdown is one that must be watched closely, but for now, higher rates are not causing a material loss of economic momentum.
That said, we remain vigilant towards economic and market risks and are firm believers that a well-prepared, long-term, diversified portfolio can withstand virtually any market surprise and related bout of volatility, including “higher for longer” interest rates, stubbornly high inflation, geopolitical tensions, and recession risks. At Synergy Private Wealth, we understand the risks facing markets and the economy, and remain committed to helping you effectively navigate this challenging investment environment. Successful investing is a marathon, not a sprint, and even intense volatility is unlikely to alter your diversified approach.
During spates of volatility, we receive the occasional query around trying to “time the market”. The concept appears “simple”, where assets are sold at the top and purchased during periods of stress. However, there is clear evidence that market timing is near impossible. Often, investors will sell early, missing out on a stock market rally. It can also be unnerving to invest when the market is flashing red. By contrast, staying invested through highs and lows has generated competitive returns, especially over longer periods. The below graphic shows how trying to time the market can take a bite out of your portfolio value, using 20 years of data from JP Morgan.
As historical data shows, the best days happen during market turmoil and periods of heightened market volatility. In missing the best days in the market, an investor risks losing out on meaningful return appreciation over the long run. Not only does timing the market take considerable skill, it involves temperament, and a consistent track record. If there were bullet-proof signals for timing the market, they would be used by everyone.
From a company perspective, Synergy Private Wealth is changing license provider from Fitzpatricks Private Wealth to Paragem - effective 19th October 2023. We are excited about the change and look forward to releasing new services in 2024 which will complement our existing offering. From a team perspective, we’ll now see Shane Case, Tania Baker and Jasmine Eyles better integrate into the Synergy Private Wealth family. Unfortunately, Linda Taylor, recently announced her retirement and plans to leave when a suitable replacement can found. Although Linda will be missed, Linda is looking forward to travelling and spending more time with family.
Sincerely, Synergy Private Wealth