Australians love a gamble. With sports betting on hold due to the Coronavirus, it seems the need to have a punt has turned many from the TAB to the ASX. With the share price of some of Australia’s leading companies at record lows, amateur investors are looking to ride the expected wave of recovery once everything re-opens.
According to the Australian Securities and Investments Commission (ASIC), from the end of February to the beginning of May nearly 4,700 new share trading accounts were opened. This is over 3 times the normal amount. There was also twice as much share trading activity by so-called ‘retail investors’ which led ASIC to have no choice but to release the following warning:
‘Even market professionals find it hard to ‘time’ the market in a turbulent environment, and the risk of significant losses is a regular challenge'.
Google trends also show that Aussies interest in share trading had a noticeable surge. Searches for ‘Commsec’ and ‘Buy shares’ are just two of many search terms to show noticeable coronavirus-timed spikes.
Timing the share market during a volatile period like we are experiencing now is risky. Even experienced share traders struggle to determine when the market has ‘bottomed out’ for a particular stock. Short term speculative investing with the aim to get rich quick is a true gamble. Investing heavily, using money you and your family will need to rely on for the future is where ASIC advises particular caution:
‘For retail investors to attempt the same is particularly dangerous, and likely to lead to heavy losses – losses that could not happen at a worse time for many families.’
It is understandable with interest rates at record lows and investment portfolios taking a dive, it is natural for individuals to want to take matters into their own hands. However, it is one thing to use time in isolation to learn a new skill, but to risk your livelihood in speculative investing is where the utmost care must be taken.
There will be many sharp rebounds and further crashes to come as the world weaves its way out of this ‘corona crisis’. If you have previously invested in Bitcoin or other cryptocurrencies you will understand what a rollercoaster ride volatility is like. It is almost pure luck that anyone will time things perfectly and cash out whilst on top in the short term. In times like these, it’s by controlling risk that you become successful over the long term.
Most people when using their own hard-earned money are best leaving share trading to the experts. There are many funds which will invest in the share market on your behalf and manage the risk properly to smooth out the violent swings and roundabouts that lie ahead. Better yet, having a comprehensive financial plan which takes into account your individual appetite for risk and then invest based on this level of risk will ensure you maintain peace of mind while the markets rise and fall.
Investing in shares as a hobby is a great way to understand business better. If done right over the long term it is a worthy skill that can reap rewards. Investing as a novice over the short term with the intention to make a quick buck will end as most gambles do. There will be a few winners but most will go home empty handed.
If you are concerned your current investments are not performing as they should, talk to us. At Saige Financial Planning we can put together a solid investment plan aligned to your risk profile so that your nest egg is protected.
