How is Yield helping their clients through this crisis?

Many may be interested in understanding how Yield is helping their clients through this crisis we find ourselves in.

Yield Financial Planners recognise that we have a responsibility to our clients that extends beyond simply investment management.

We need to have a good understanding of what our clients value and what they want to achieve, in order to ‘first’ help them develop a foundation plan for the future ‘and then’ to help them manage changes in personal circumstances, legislation and investment markets, as they inevitably occur over time.

The fallout from the Coronavirus is an extreme example of the changes that life can throw and defines precisely why financial planning is so important.  This article focuses on the steps that we already had in place prior to the pandemic and outlines some of the strategies that we have undertaken and recommend you take to minimise the fallout.

Before this pandemic occurred

We had taken several steps with clients that are always part of our process, and these steps have helped to manage the investment fallout of this unprecedented global event. At a personal level, we identified with clients their:

1. Risk profile – this determines comfort with volatility levels, provides guidance over long term return expectations and is something we re-visit over time;
2. Liquidity needs – this is one of the most important aspects of investing. Getting it right ensures there is no need to sell growth assets like shares and property at the wrong time;
3. Investment time frame – Ultimately any investment made needs to be made with the opportunity to hold it for a suitable time frame; and
4. Bespoke Investing needs – several of our clients have established portfolios and/or require highly personalised investment solutions determined by their individual circumstance, strategy and stage of life EG: Investment properties; Direct shares; Their own businesses; International assets; Or any number of other unique components of their structure and strategy.

For the money we manage directly for clients, we knew before this pandemic took hold that we were at the late stages of a long-term bull market and we had positioned our portfolios with the expectation of inevitable volatility. We didn’t know it would be the COVID-19 virus that would cause the next bear market, but we knew it could happen at any time and because of the defensive measures we took,  our portfolios have performed quite well considering. Some of these include:

1. In our growth investments, we’ve had an overweight position to international shares over Australian and they were all unhedged to currency. It’s typical that when there is global instability and down periods in share markets, that there is a flight to perceived safer currencies than the $A. This typically puts pressure on the $A downwards as we’ve seen and our investment strategy has buffered some of the fall.
2. We’ve allocated to Private Equity, as part of our growth allocation, knowing that they are typically less correlated to share markets in how they perform; and tend to do well in periods of market dislocation or in other words down markets. This is because they find opportunities when valuations are down.
3. Some of the investments we have selected are specifically designed for periods of market volatility. One fund for instance is a managed volatility fund, that aims to take only half a market fall, but capture at least 80% of market upside and has a great track record of achieving both. One fund is a capital stable fund, that has the flexibility to cash out of the market if they feel it best, but otherwise makes up part of our Australian Share exposure.

These measures and others have offered some buffering from the full extent of the fall.

When the market turned downwards

Yield have an investment committee, that meet monthly, however held a special committee meeting on Saturday 29^th February, to discuss the Coronavirus and the impact it was having on markets. We resolved that:

1. “Coronavirus is not going anywhere anytime soon
2. Its unlikely that it will be contained
3. Even if it is contained, it will likely be a while
4. The impact of the efforts to contain it are having meaningful impacts to the economy
5. From here fear will likely bring on a period of risk off and volatility
6. This could even be the catalyst that derails the current bull market
7. There will likely be a snap back rally at some point. Possibly because of an interest rate cut announcement in the States or some other reason that will offer an opportunity to make some adjustments to the portfolio

With the above in mind, we think it is prudent to wait for a recovery rally and then to take a defensive tilt in portfolios where practical by up to 13%.”

Source: Excerpt from Yield investment committee meeting agenda

On the following Monday the US Federal reserve and other central banks around the world made an announcement that they would cut interest rates, which arrested the fall and we sold out some of our ’shares’ exposure for several clients on the Wednesday, which was an up day for markets. This money is parked in cash and we intend to reallocate this back into the market at a later point.

Next, we made a strategic move out of a Global Credit Fund we’d been holding, because we did not feel it was sufficiently defensive anymore.

Most recently on the 26^th March, we’ve advised to sell a portion of International shares, after a strong rally, resulting from the unprecedented global fiscal spending governments are doing around the world and reserve banks are providing also. This money is now in cash and we intend to reallocate it back into the market at a later point.

We will continue monitoring the markets closely, with a view to re-weighting portfolios back to risk profile when we have a bit more clarity on our way through this crisis. This defensive tilt we’ve taken for clients, will help to reduce volatility in the short term and gives us some flexibility to influence the recovery. To learn more about Yields Investment approach click here.

Personal considerations throughout a market fallout

The reality of this pandemic is that clients are affected in a range of different ways and need different things from us because of their own circumstances. A lot of this is linked to stage of life.

The most important overarching message for all our clients, is not to panic about what you cannot control and to be proactive in making positive choices around what you can control. When we created your financial plan, we did so knowing that investment markets go up and go down and it will only be in extreme cases, where a significant change to the strategy is required. If you are worried that you might fall into this camp, then we urge you to contact us sooner rather than later. Otherwise we’ll continue monitoring everything for you and you can rely on us to help you to make empowered financial choices.

Some steps you should be considering include:

1. Government support measures.  Review your eligibility and understand what you are eligible to and how you need to go about claiming the support, to read more about current government support measures available click here or download the Government’s Coronavirus Australia App here.
2. Manage your cash-flow and expenses. We suggest you look at ways you can reduce your spending on day to day expenses and look to defer major expenses wherever possible (please let us know if you would like a budgeting tool);
3. Assess your options to access liquidity. These include cash, offset, redraw in home loans or other defensive, liquid assets you can access. It is important to have a plan on how you are going to ride out your short term cash-flow needs, without the need to sell down on growth assets. For our retirees this plan should already be in place, however for wealth builders this will be especially important. In-particular business owners that have broader financial commitments to manage;
4. Assess your debt position. If possible look at refinancing to cheaper interest rates or if you need to, even explore the possibility of a payment break with your bank, which at least NAB I know have said they will offer;
5. Be prepared to invest. Market downturns offer up opportunities and the most successful will have a strategy to be cashed up and ready to go;
6. Make super contributions if you can and it is money that you can afford to put away for retirement. The market is on sale at the moment and buying into this market at lower prices will help to accelerate your recovery over the long run.
7. Vulnerable people, including seniors should look into home delivery groceries. If you are a senior or for your parents that are, consider applying to one of the major supermarkets to arrange home delivery. We know of at least Woolworths  are offering a special service for vulnerable people.

Final words

This is a time for people to come together and be supportive of one another. Everyone has a part to play and as your adviser, we will do all we can to help you transition through this to the other side.

Please let us know if you’d like to discuss any of this – contact us