In the previous few years at the FFE house we’ve been making plans to help us navigate a market crash so I’ve been quite excited about the possibility of a stock market downturn for some time. I’ve been curious as to how I’d react whilst seeing large declines in our networth; how our job security would fair; and whether or not our emotions would derail our investing plans.
Since it’s been about 2 and half months since I did a post discussing our investment plans in response to the COVID-19 market crash I thought it would be nice to write a post on how things have gone over the last few months.
Feelings to far
I expected that dropping a 6-figure sum off our investment portfolio value to feel like crap but so far it hasn’t felt as bad as I expected. I feel that having made plans in the years prior to this event helped tremendously. Once I saw our portfolio value start dropping it was time to think about looking at our debt serviceability and working out how much extra we could put into the market.
Did we stick to our plans?
Short answer, yes. We did pretty much exactly I said we would in the previous COVID-19 post.
Temptations to time the market
Honestly, I did think about it, there were numerous times that I wanted to delay our investment activities because I thought the market had further to fall and there was the possibility of getting a better price. Also, in the following months after we made our initial investment the market rallied strongly and I was I regretting not putting more in at the time, however I really just needed to remind myself that market timing is almost impossible and that sticking to the plan should be the key indicator of success.
How has our portfolio performed?
Between the 20th February and the 20th of March all of our funds lost significant value. The numbers are detailed in the following table:
| Global Core Equity (Hedged) | -34.5% |
| Global Core Equity (Unhedged) | -25.7% |
| Australian Core Equity | -34.5% |
| International Property | -42.9% |
I was amazed to see how quickly the market shed value. In the space of about a month we experienced significant drops in portfolio value – the bears wasted no time destroying all of our 2019 gains, and then some. However, even more interesting is the recent few months rally where the market has gained back a fairly large proportion of its previous losses. Between the 20th of March and the 9th of June our fund unit values have risen significantly, as detailed in the following table:
| Global Core Equity (Hedged) | 35.8% |
| Global Core Equity (Unhedged) | 17.2% |
| Australian Core Equity | 30.8% |
| International Property | 39.0% |
Bear in mind that even though the percentage gain for 1 of the funds (Global Core Equity Hedged) is 35.8% vs a loss of 34.5% all of the unit prices have not surpassed their previous peak. This is due to the fact that if you lose 35% you will need to experience a gain of 1/(1-0.35) = 53.85% before you break even, so there is still a fair way to go before parity.
Here are the graphs showing unit prices from the start of the year to the 9th June
Going forward
This is an exciting time where short-term risk remains fairly high. How the markets will price the economic risks going forward is anyone’s guess. After a very lucky 3 months of investing close to double our standard contributions we have decided to wind back our contributions to the standard size. This is due to the very strong rally over the last 3 months as well as our emergency fund not looking as plump as it usually does. In addition to this I don’t think that the pandemic and its economic effects have been fully passed on to businesses just yet so I feel that downside risk in the short term is high.
Concluding thoughts
Overall, I’m feeling very pleased with how we rationally executed our market crash strategy. I’m feeling lucky that the majority of our portfolio fund unit prices are only about 10-15% lower now than at their peak (the real estate fund is lagging), but at the same time I’m aware that short term risk remains high. This means that we may not have seen the bottom of the market yet; where it goes from here is impossible to guess with any level of certainty.
If you are feeling like you ‘missed out’ on the buying opportunities in March, April and May please put those thoughts behind you. Remember that investing is a long journey and if you are dollar cost averaging the gains of a few months will likely be insignificant compared to the size of your overall portfolio once your journey to financial freedom nears a close. Also remember that the market is highly unpredictable and you must not count of recent rallies to be continued into the future. The best time for you to invest is when your mind is in the right place; your household cash flow is in order; and you can accept the risks that investing presents.
Engineer your freedom
References
Vanguard Investments, 2020, Vanguard International Property Securities Fund (Hedged), Vanguard Investments Australia Ltd, viewed 13/6/2020, <https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/wholesale/portId=8114/assetCode=equity/?prices>
Dimensional, 2020, Funds, DFA Australia Limited, viewed 9/6/2020, <https://au.dimensional.com/funds>