With the 24/7 news media and unprecedented access to current information pushed out to us via our smartphones it is nigh on impossible not to be made aware of the day to day fluctuations in financial markets – and as is the case with other calamities, it’s the bad news that gets the most attention.
This news often refers to daily movements in certain share market indexes like the All Ordinaries Index in Australia or the S&P 500 Index in the USA. A share market index is a measurement of a section of a particular share market. It is computed from the prices of selected shares (typically a weighted average). As well as being a number quoted on the nightly news it is mostly used as a tool used by investors and financial managers to describe the market, and compare current price levels with past prices over the months and years to calculate market performance.
The reality is that, other than a relatively small percentage of more experienced investors, most people find share market indexes totally confusing and at times hard to reconcile with what is actually going on in the economy. A case in point is throughout the remainder of this crisis there will be times when the share market, represented by these indices, seemingly moves in lockstep with the economic data. At other times the share market will seem utterly detached from the economic reality on the ground.
Get used to it.
The reason for this is that the share market is made up of millions of different participants who are constantly recalibrating their differing forward views and expectations on the fly. Rightly or wrongly this is how the share market operates at times and this is in turn reflected in the movements of share indexes like the ones mentioned above.
Not only do these share market indices make for a terrible short-term barometer of the economy, they are also a poor benchmark for your own success.
There are far more important benchmarks when it comes to measuring your success in life.
Any market-related benchmark is not going to tell you whether or not you’re on the road to financial success. You cannot measure your financial goals through the daily price levels of the ASX200 or the S&P 500 or the Dow.
The pandemic is showing so many of us why health and family are far more important than the gyrations in the share-market. Your career, the ability to earn and save money with sensible strategic advice will prove to be more important to your long-term financial health than what happens to the daily movements of shares.
Is the share-market still a valuable savings vehicle for those who have the means?
Absolutely. A significant portion of our client portfolios is invested in a highly diversified way across and within share-markets around the world.
The share-market remains one of the best, most cost-effective ways to capture the profits, dividends, and innovations that come from the corporate world. Shares as an asset class will always play a role in shaping your willingness, need and ability to take risk.
But the share-market is not the economy or your career or your family or your health or your happiness. Those are far more important benchmarks when it comes to measuring your success in life.
The share-market plays an important role in the investment industry, acts as a form of capital formation and remains one of the best long-term savings vehicles there is. But the current situation is a good reminder that it is not the correct benchmark for success.
At Calibre we plan for our clients’ lives, not just their money, so we always take in a wide view of financial progress. Today’s market declines will simply not matter with a longer term, panoramic perspective. But “sticking to your plan” doesn’t mean we don’t do anything during a major market correction, especially if you’re at or nearing retirement age. It means that the moves we contemplate are based more on your upcoming life transitions than they are on unpredictable market movements.
The ups and downs of the market rarely match the ups and downs of your life.
A share market index should not be your benchmark.
Our clients’ financial well-being is our number one objective. We continue to work hard behind the scenes to monitor this unfolding situation. If you have any questions about your specific situation, please contact us. We are here to help.
Next steps
To find out more about how any of these measures may be of assistance in your individual circumstances, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.
This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax/or legal advice prior to acting on this information. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product. The material contained in this document is based on information received in good faith from sources within the market, and on our understanding of legislation and Government press releases at the date of publication, which are believed to be reliable and accurate. Opinions constitute our judgment at the time of issue and are subject to change. Neither, the Licensee or any of the Oreana Group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Gordon Thoms and David Conte of Calibre Private Wealth Advisers are Authorised Representatives of Oreana Financial Services Limited ABN 91 607 515 122, an Australian Financial Services Licensee, Registered office at Level 7, 484 St Kilda Road, Melbourne, VIC 3004. This site is designed for Australian residents only. Nothing on this website is an offer or a solicitation of an offer to acquire any products or services, by any person or entity outside of Australia.