Protection of equities of high importance

By Cameron Micallef

September 13 2019
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Older Australians are being urged to protect what they have as the market shows signs of slowing down.

Pentalpha Investment Management’s executive chairman and head of investments, Denis Donohue, has discussed with nestegg how investors who have spent a lifetime accumulating wealth should better protect themselves against losses.

“Just as you would always insure your investment property against a loss, I think you should do the same for a share portfolio,” Mr Donohue stated.

The fund manager highlighted the importance of this mindset for older Australians who “haven’t got 12 to 20 years to sit around and wait for [their portfolio] to come good again”.

Insuring equities

Mr Donohue noted how investors are quick to insure their property, lives, cars and other valuable items but still refuse to insure their equities.

Blaming the industry, Mr Donohue said the investment industry, and in turn the advisers they serve, has grown up in an accumulation world post-superannuation phase.

He called for a total rethink of the industry, believing finance professionals need to advise investors to think about protection over accumulation as the individual ages.

“The market demands have been around accumulation, with the government almost forcing the industry to think about people moving into retirement,” he said.

Therefore, “the industry servicing this world needs to change”.

‘The inevitable decline’

Following a long bull run, Mr Donohue said that he expects an eventual correction to occur in the market.

He noted that markets rise and fall over a long enough time frame, with “very clever investors” being able to time markets.

“The longer you go without a downturn in a rising market, it will inevitably happen,” he stated.

“In a 30-year time frame, you would expect a number of smaller declines and one or two major declines.”

He then highlighted that younger Australians are in a position to take advantage of the downturn points as equities become cheaper.

“It’s prudent to factor that into your thinking,” he offered.

“If you can take advantage of the downturns by averaging in and buying more assets, then that’s [an] accumulation approach.”

On the other end of the spectrum, Mr Donohue said older Australians who have passed the accumulation phase are the ones most likely to suffer from downturns and need to mitigate risk.

If you are all in and you don’t have more chips to throw into the pot, then Mr Donohue said it’s a matter of optimising what you have and minimising the amount of risk.

Managing said risk

The peace of mind gained by mitigation of risk is well worth the perusal of professional services by older Australians, the portfolio manager said.

He said it’s “probably being prudent” to manage for downside risk to some extent.

“It gives you a great sense of comfort when things do go wrong,” Mr Donohue said.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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Retirement