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    Issue 14


    Financial management through COVID-19

    Steve Thompson Headshot

    Steve Thomson


    Head of Advice, Doctors' Financial Services, Avant

    financial sages

    Chances are you will come through the COVID-19 financial crisis less well off than when it started. What is it that those in the know do differently to keep them ahead in the long-run?

    From a business perspective in the first instance, there are resources you should tap into, such as the Government stimulus package. There is devil in the detail which can make it harder to get the best outcomes for you and your team.

    Both on a practice and individual level, it is also essential to review and manage your cashflow. Your focus should be on maximising the benefits now and preparing for varying degrees of uncertainty next financial year at the same time.

    On a personal level, you may have seen some serious changes to your investment and superannuation balances. When investment markets are volatile it is a good time to review your risk profile and overall investment strategy. However, it is not a time to make rash decisions.

    Investing evokes emotions and emotional investment decisions are the worst investment decisions. Successful investors avoid this and one of the techniques used is to gather information and advice to understand the options available, so decisions are informed.

    Investing is a long-term strategy

    It is hard watching the value of your investment fall. But there are three questions you need to ask before you make any investment withdrawal decision:

    • Is it the right time to withdraw?
    • Where am I going to put the money and for how long, and how do those return compare?
    • When will it be the right time to re-enter the market?

    There is not an investment manager anywhere who can give you a precise answer to those. Each individual has different immediate needs and long-term goals, each coming at a price.

    Let’s look at an example. You have $100,000 invested in the Australian share market. As a result of COVID-19 the market falls 20%. You decide to withdraw the remaining $80,000. With the idea of protecting your remaining investment, this goes into the bank, at around 2% because you believe you can’t afford to lose any more. Some time passes and you see signs of recovery. Everyone is saying the market is back, so you decide to get back in as the market recovers. You invest your $80,000 back into the Australian share market. But in order to get back to your $100,000 starting point, you now need to get a 25% return, even though you only lost 20% (20/100 vs 20/80). To make matters more challenging, in real terms taking into effect the current annual bank interest rate of 2% and the effects of inflation, you may have actually lost money while your cash was in the bank.

    ...money now needs to work harder just to get back to where it started.


    In this example, choosing a bad time to leave the market placed the remaining funds in a poor investment option, although for many the only option, and the money now needs to work harder just to get back to where it started.

    This shows why it is important to make decisions without emotion and understanding such things as the tax implication before plotting the best way forward to achieve your goals.

    What does the future hold?

    In the early days in the COVID-19 crisis, anecdotal evidence from a major super fund highlighted that clients were withdrawing their investments and moving to cash, depositing it in the bank. These investors may have crystallised their losses and now have to consider when the best time is to get back in.

    Which takes us back to the question, when is it the right time to withdraw and is it the right time to reinvest?

    No one knows the exact answer to these questions, but there is some historical evidence which can guide your decision making.

    If you look at the graph below from Morningstar, $100,000 invested in the Australian share market in 1993 would have produced an average of 8% return each year since. There would have been highs and some catastrophic lows, including the ’97 crash and the GFC. Today, that $100,000 would now be worth more than $700,000, if you had left it there and reinvested your returns.

    Missing the best days since 1993

    No days


    10 days


    20 days


    30 days










    If you had withdrawn your money at some point and happened to miss the best 10 days in the market over the 27-year period, you would have earned an average of 6.1% and your investment would be worth around $450,000. You have dropped at least $250,000 by trying to ‘time the market’.

    It gets even worse if you managed to miss the best 20 days across the period. You would have earned 4.6% and have an investment value of just over $300,000. And if you truly lucked out and missed the best 30 days, it’s 3.3% and just over $200,000.

    Stick to your strategy

    The key lesson here is that there will always be economic market cycles, like COVID-19, the GFC and the crash of 1997. The convincing nature of daily market commentary can tempt even the most seasoned of investors into divesting - as our own Chief Investment Officer says, “there is so much noise, which you just need to ignore”.

    The reality is, investment success is more often driven by time in the market and not timing the markets. No one knows the answers but by sticking to your goals, risk profile and strategy and not making emotional decisions, you may just ride out the crisis. If you have an adviser and you need to sell investments, they can help you decide which ones to sell, how to minimise negative taxation implications and where to put the cash. Importantly, they will remind you of your long-term strategy and help you make informed decisions, and may just prove to be the most valuable investment you make.

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