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Book a FREE consultation
and receive your complimentary eBook

Get started with a free strategy consultation and receive a copy of the Good Fortune Guide – written by James McFall, Managing Director Yield™ FP and 2020 National Finalist Certified Financial Planner of the Year to help educate you on your Financial Plan.

It’s Normal for Share Markets to Have Periods of Drawdown

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Wealth Creation Investment planning needs great foresight with a structure that is bespoke for your needs and a portfolio that is considerate of your risk profile and what you are comfortable with. We can help you align your investment strategy with your financial plan.

Drawdown periods in investing can sometimes be quite stressful. However, it’s important to know that periods of drawdown are totally normal.

drawdown
Source: A Wealth of Common Sense

The above graph provides a visual account of the S&P 500 index (America’s top 500 companies by market capitalisation) over the past 94 years.

 

The blue lines are the total returns for the year and the red dots are the maximum drawdown throughout the year.

 

There is a lot of information that can be taken away from this graph, but one salient point to remember is that markets don’t go up in a straight line. Indeed, there are always some pullbacks in a year.

 

Because the share market right now is in a correction, it is timely to consider that:

 

  • On average share markets have risen 3 in every 4 years. This means that despite the fact that the market has drawn down every year, in 3 out of 4 of those years the share market has still ended up in positive territory.
  • The average return overall of the S&P 500 since 1928 is 10.13% p.a.
  • The total return exceeded inflation by 6.91%, therefore creating true wealth for investors over time.

While it is normal to feel uncomfortable when share markets are dropping, it is also normal that share markets correct.

 

The trigger for the correction we are current experiencing is primarily inflation and pending rising interest rates. The impact of rising interest rates is taking the steam out of some parts of the market more than others and is likely a healthy readjustment, as valuations in some sectors have become very high. For our clients, we reduced holdings in some of the worst affected sectors last year.

 

To be a successful investor, you need your investment strategy to align with your financial plan. This is to ensure that you always have money when you need it, without the need to drawdown on your growth assets (like shares and property) at the wrong time.

 

Once your investment strategy aligns with your financial plan, you can find true financial freedom.

 

Read here about our wealth creation advice and how we can help you align your investment strategy with your financial plan.

Important Note
Any information provided here is general advice only and does not consider your objectives, financial situation or needs. This information should not be taken as comprehensive and does not constitute legal or financial advice. You should seek legal, financial or other professional advice before relying on any content. Yield Financial Planning is not responsible to you or anyone else for any loss suffered in connection with the use of this information. Information is only current at the date initially published.

About Yield™ - Financial Planner Melbourne

Who we serve – We help time poor professionals and business owners who intuitively know they should be doing more to improve their financial position and are seeking an expert to guide them on financial planning strategies. Our clients want personalised financial planning advice and to feel empowered and confident that they can achieve a secure transition to retirement.

What we do – We gain a deep understanding of your current financial position and preferences, what you value and want to achieve. We then help you develop a highly personalised financial plan, to show you how to make your money work harder for you. Ongoing we regularly monitor and measure progress against your plan projections, to show you how you’re tracking and help you manage change to your advantage.

How we do it – We apply our proven expertise in investment markets (Shares & Property), Tax and Debt structuring, Retirement Planning, Risk management and Estate planning, to help you reorganise the way you use your money to achieve your desired outcomes.

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