Investing in shares – winning by not losing

Share markets have endured a tumultuous start to the year, with the war in Ukraine, lockdowns in China and inflation anxieties relegating COVID-19 news flow to the back pages.

From an investment standpoint there have been very few places to shelter. However, in this environment, trying to predict when markets will reach their lowest point becomes notoriously difficult.

Throughout the market decline, Muirfield Financial Services have continued to support their clients with advice to overcome the temptation to make hasty or reactive portfolio decisions.

While the resolve of investors is being tested as the market euphoria of recent years is replaced by panic, remember that to achieve attractive long-term returns, you must be prepared to endure painful drawdowns along the way.

As this chart demonstrates, market falls (drawdown) for the ASX 200 in excess of 5 per cent have occurred every year since 2015.

Likewise, falls exceeding 10 per cent have not been uncommon, despite the market still generating a cumulative return of 36 per cent over this period.

This highlights that although painful, the market decline year-to-date has been relatively normal and that generally it pays to stay invested during these times as the market has always recovered and subsequently reached new highs.

As the market peaks and troughs, investors will inevitably use the “this time it’s different” rationale to justify emotive-driven behaviours. And although it can be difficult when pessimism overrides levelheadedness, Muirfield Financial Services believe that viewing this market fall through a historical lens provides invaluable perspective.

Over the long term, the range of potential outcomes is overwhelmingly skewed positively, with an average return for the Australian share market over the past 30 years of about 10 per cent per annum.

Importantly, this has been achieved through periods of war, recessions, pandemics and other crises, which reinforces the benefits of investing through-the-cycle and not letting emotions cloud your judgement.

At Muirfield Financial Services, portfolios are designed with the aim of providing protection during market declines.

While Muirfield remain highly attuned to emerging risks, the company does not feel that these are compelling enough to move away from a positive long-term outlook on markets.

Remember that markets always bottom well in advance of a positive shift in sentiment and making hasty portfolio decisions is generally to the detriment of meeting your long-term objectives.

Instead, Muirfield is reminding shareholders that a robust portfolio construction is the best way to win through not losing.