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InvestorTV talked to financial expert and best-selling author Noel Whittaker, to get his views on the recent market volatility, and to ask him for sensible strategies for investors.
“There’s a great saying that in tough times, that money goes from weak hands to strong,” Mr Whittaker says.
“All the stock market is doing is behaving normally. About every five or six or seven years we have one of these normal downturns. And then the people who’ve been in there quite a long time see it as a great time to buy, and those who’ve just got in the stock market, panic.”
Noel Whittaker says that instead of panicking about the recent downturns, investors should instead look at the market trends over a longer timeframe. He adds that 2008 may not be as bad a year as some are predicting.
“My expectations are that it might finish as a fairly neutral year,” Mr Whittaker says. “I mean we lost a $100 billion recently, and we gained $100 billion back.
“The last negative year was 2002,” Mr Whittaker continues, “when the market fell nine per cent. Then every year since then there have been double digit returns.
“Now when you think that the long term average (return) from the stock market should be around 10 or 11 (per cent), then if you have a few years of double digits, you can expect the market to take some of those gains back.”
Taking this long-term view of the share market is an approach that Noel Whittaker believes should be carried over into investing.
“You need to have at least a five to 10 year timeframe in mind when you invest, to give yourself time to get through one of those down turns when they happen. If it’s shares, they do this [go up and down]. So if you sell now, all you do is turn a paper loss into a real one. So my advice would be, hang in there. And if you’ve got spare money, invest more in there.”
For those not happy to invest more money into the stock market during these bumpy times, there are other avenues available.
Mr Whittaker says:
ONLINE SAVINGS
“Well if you’re too nervous to go in now (to the share market), the best place is the online savings accounts offered by the major banks. They’re paying over 6.5 per cent, your money’s totally safe, your money’s at your call, and there’s no entry or exit fees.”
BONDS
“Most people don’t buy bonds and most bond funds haven’t done terribly well. I mean, when you can get a safe 6.5 (per cent) on the online accounts, why would you bother with bonds? The general thinking [is] that we’re reaching the top of the interest rate cycle, so I don’t think that that’s the best time to be buying bonds.”
REAL ESTATE
“There is no such thing as the real estate market. There’s the commercial market, and the residential market, and there’s a market in Sydney and Cairns and Noosa. So you’ve got to identify a specific growth area. But the whole trouble is a lot of people are chasing real estate and it’s a big chunky thing. And in most places there’s been a big real estate boom. So I think we just need to be careful there as well.”
PRECIOUS METALS
“Well, to me, if you go into precious metals like gold, you’re gambling. If gold’s your thing, then I’d buy gold shares, because you haven’t got the problems of storage, and at least you’re getting dividends while you’re waiting for the market.”
SUPERANNUATION
“Almost every superannuation fund has a range of options, from cash to high growth. And normally there is no cost at all to move from one option to the other. But once again, you have had the loss on the share component. If you cash that out, then of course you turn a paper loss into a real one.
“If you’ve got an allocated pension, if you’re drawing down from your super, I also suggest that you now start to draw from the cash component only.”
Despite the recent market volatility, Noel Whittaker says that in 2008 the investment rules remain the same as they would in any other year but you may just have to be a little more patient.
“I don’t think the fundamental principals have changed,” he says. “You need a diversified basket of investments, and if you’ve got capital growth investments, you look at them on a five to 10 year term, and just stay in there. And always buy quality.”
“There’s a great saying that in tough times, that money goes from weak hands to strong,” Mr Whittaker says.
“All the stock market is doing is behaving normally. About every five or six or seven years we have one of these normal downturns. And then the people who’ve been in there quite a long time see it as a great time to buy, and those who’ve just got in the stock market, panic.”
Noel Whittaker says that instead of panicking about the recent downturns, investors should instead look at the market trends over a longer timeframe. He adds that 2008 may not be as bad a year as some are predicting.
“My expectations are that it might finish as a fairly neutral year,” Mr Whittaker says. “I mean we lost a $100 billion recently, and we gained $100 billion back.
“The last negative year was 2002,” Mr Whittaker continues, “when the market fell nine per cent. Then every year since then there have been double digit returns.
“Now when you think that the long term average (return) from the stock market should be around 10 or 11 (per cent), then if you have a few years of double digits, you can expect the market to take some of those gains back.”
Taking this long-term view of the share market is an approach that Noel Whittaker believes should be carried over into investing.
“You need to have at least a five to 10 year timeframe in mind when you invest, to give yourself time to get through one of those down turns when they happen. If it’s shares, they do this [go up and down]. So if you sell now, all you do is turn a paper loss into a real one. So my advice would be, hang in there. And if you’ve got spare money, invest more in there.”
For those not happy to invest more money into the stock market during these bumpy times, there are other avenues available.
Mr Whittaker says:
ONLINE SAVINGS
“Well if you’re too nervous to go in now (to the share market), the best place is the online savings accounts offered by the major banks. They’re paying over 6.5 per cent, your money’s totally safe, your money’s at your call, and there’s no entry or exit fees.”
BONDS
“Most people don’t buy bonds and most bond funds haven’t done terribly well. I mean, when you can get a safe 6.5 (per cent) on the online accounts, why would you bother with bonds? The general thinking [is] that we’re reaching the top of the interest rate cycle, so I don’t think that that’s the best time to be buying bonds.”
REAL ESTATE
“There is no such thing as the real estate market. There’s the commercial market, and the residential market, and there’s a market in Sydney and Cairns and Noosa. So you’ve got to identify a specific growth area. But the whole trouble is a lot of people are chasing real estate and it’s a big chunky thing. And in most places there’s been a big real estate boom. So I think we just need to be careful there as well.”
PRECIOUS METALS
“Well, to me, if you go into precious metals like gold, you’re gambling. If gold’s your thing, then I’d buy gold shares, because you haven’t got the problems of storage, and at least you’re getting dividends while you’re waiting for the market.”
SUPERANNUATION
“Almost every superannuation fund has a range of options, from cash to high growth. And normally there is no cost at all to move from one option to the other. But once again, you have had the loss on the share component. If you cash that out, then of course you turn a paper loss into a real one.
“If you’ve got an allocated pension, if you’re drawing down from your super, I also suggest that you now start to draw from the cash component only.”
Despite the recent market volatility, Noel Whittaker says that in 2008 the investment rules remain the same as they would in any other year but you may just have to be a little more patient.
“I don’t think the fundamental principals have changed,” he says. “You need a diversified basket of investments, and if you’ve got capital growth investments, you look at them on a five to 10 year term, and just stay in there. And always buy quality.”
