I keep hearing there’s going to be a big recession. I timed the sale of my ETFs really well after COVID, and now I’m thinking maybe I should put all my money into bonds or term deposits until we ride out the economic turmoil. I’ve been sitting on a lot of cash, and it just seems like the dip in the market isn’t coming. I’m in my early thirties, and earn pretty well. What are your thoughts on the best investment strategy given current market conditions?
I’m not in the business of making economic predictions. What I can do is help you understand foundational investing concepts to make clearer decisions in times of uncertainty.
Riding the waves of the market will often leave you better off than trying to pick the peak,Credit: Simon Letch
Firstly, the investment strategy you choose is less about what’s happening in the market this year, and more about your personal preferences, investing skills, and your financial goals.
For instance, do you want a more set-and-forget strategy? Or do you like being actively involved? How much time do you want to spend dedicated to selecting and managing your investments? Is it more important to you to maximise returns, or keep things simple?
Someone who wants a passive approach may design their plan such that they can just keep investing according to the plan through the ups and downs. Someone who wants to be more actively involved, may spend more time making changes according to market movements. Both can yield good outcomes but there are pros and cons to each.
It also depends on your financial goals. Since you’re still pretty young, you’re likely in the accumulation stage of wealth where your priority would be growth (as opposed to preservation).
While you’ve been sitting on your cash waiting for a crash, your money could have been in the market growing.
Usually, this means holding a significant allocation towards growth assets (like shares and property), even through market downturns. Often, the biggest growth comes immediately after the downturns, which can’t be predicted or timed. So if you pull everything out of the market hoping you’ll get back in when the market hits the bottom, you’re likely to miss it.
In contrast, someone who is approaching retirement may prioritise preservation, which means they’d put a larger allocation towards more defensive assets (like term deposits, bonds, gold etc). They can’t afford a high allocation to growth assets because no one knows how long a recession will last, during which time they would need access to their retirement funds.
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