​What should investors be thinking?

Times like the present can be concerning as no one likes to see the value of their investments decline.

The malaise affecting equity markets and risk assets generally has shown no let up with Australian shares slipping into bear market territory (defined as a 20% or greater decline from the most recent high).

From their highs last year to their latest lows, US shares have fallen 13%, Australian shares -20%, Japanese shares -25%, European shares -26%, Emerging market shares -27% and Chinese shares -49%. So Australia is not alone – in fact the drivers of the fall from last year’s high are global and many markets have had deeper falls.

Investors need to allow for several things though:

  • Sharp falls are regular occurrences in share markets – we have seen it all before. Share values rise over many years with numerous events dragging them down periodically, but with the trend ultimately rising and providing higher returns than other more stable assets.
  • Selling after a major fall just locks in a loss.
  • When shares and growth assets fall, they are cheaper and offer higher long term return prospects. So the key is to look for opportunities that the pullback provides – shares are getting cheaper, investment yields on shares and corporate debt are rising.
  • While shares may have fallen in value, the dividends from the market haven’t. So the income continues to remain attractive, particularly compared against bank deposits.

Source: RBA, Bloomberg, AMP Capital