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[Editor’s note: Do further research of your own or talk to a licensed financial adviser before acting on ideas or themes in this article. This commentary provides general views on selling shares in a volatile market. Different investors could have different investment needs and priorities, as sharemarket conditions change.]

By Vera Lin, Ord Minnett

Investors have seen a sharp increase in sharemarket volatility over the last three years due to a myriad of factors. COVID-19 has triggered protracted global lockdowns since 2020 and caused global supply chain issues that persist today. 

Consequently, the S&P/ASX 200 Index returned -11.1% in FY19/20, falling 36% from peak to trough in just in 32 days.

In February this year, Russia invaded Ukraine, inciting the first war between European countries since the Second World War and worsening the the global food and energy crisis. This drove inflation numbers to record highs, causing central banks to start hiking interest rates in an aggressive tightening cycle.

Vera Lin, Ord Minnett

The Australian sharemarket [as measured by the S&P/ASX 200 Index] declined 9.9% from peak to trough in January 2022, then fell again 15.3% from peak to trough between April and June, returning -10.2% for FY21/22.

While sharp market sell-offs can be quite unnerving for investors, it is important to remember that downturns and bear markets are only one side of the story. 

The other side of volatility is the recovery, which investors saw in spades for FY20/21 when the S&P/ASX 200 Index recovered 23.9% after the Reserve Bank injected an unprecedented level of stimulus packages. 

As for FY22/23 to date (to mid-August), the Australian market has increased 8.3%.

Historically, bull markets have much stronger returns and have lasted for much longer than bear markets, according to Ord Minnett analysis. Since 1980, the Australian All Ordinaries Index (Accumulation) has seen 33 years of positive returns vs nine years of negative returns, as the chart below shows.

Australian All Ordinaries (Accum.) Index

Financial years have recorded a loss ~ 1 in 5 years

This is supportive of a long-term growth trend despite short-term market volatility, with Australian shares yielding an annualised financial-year return of 9% since 1993, Ord Minnett analysis shows.

Investment returns

Annualised returns since 1993

[Editor’s Note: There are potential benefits and risks from holding rather than selling shares during periods of high sharemarket volatility. Holding shares in a falling market could expose you to further short-term losses. Holding shares that are falling in value could potentially trigger a ‘margin call’ if you have borrowed to buy shares through margin lending or another geared facility. The key is understanding your risk tolerance for share-price losses, your ability to withstand short-term losses, and the potential implications of buying/holding/selling shares in the context of prevailing market conditions].


In Ord Minnett’s view, the key to achieving these long-term returns is to avoid selling during a downturn or a bear market. 

It may be tempting to switch from shares to cash, to stop the value of investments from falling. However, this could potentially crystalise losses at the bottom of the market. 

Also, investors could potentially miss out on receiving dividends. Or they might not be able to participate in capital raisings, takeovers and mergers, which could potentially offer attractive opportunities to invest in high-quality companies at lower prices. 

Liquidating to cash can also present another critical problem: knowing when to reinvest. The sharemarket is forward-looking, while economic indicators are laggards. By the time an investor may feel comfortable enough to reinvest due to signs of an improving economy, they could potentially have missed out on those crucial gains at the start of the recovery cycle. 

Markets will also attempt to price in future interest-rate movements and recessionary risks. So, if investors were to act only on news headlines, their actions could be belated and potentially not achieve the intended effect. 

In Ord Minnett’s view, long-term investors should try to tune out market noise during periods of heightened volatility and stay invested in a well-diversified portfolio of asset classes that is appropriate to their risk profile. 

Having access to an adviser can help investors navigate through this period of uncertainty by recognising any behavioural biases, avoiding rash or emotional investment decisions, rebalancing to reduce excessive risk and repositioning to better capture the evolving macroeconomic backdrop.

Gemma Dale, NAB

One of the greatest challenges for investors is knowing how to respond to a significant fall in share prices. 

If the current sharemarket rally (to mid-August in FY23) continues, much of the commentary below may be redundant in the short term. However, there is no guarantee that this (or any) rally will not falter or peter out. 

It pays, therefore, to have a plan should volatility return – which it ultimately will. 

Gemma Dale, NAB

1. Decide how much you’re willing to risk

If you are uncomfortable with potential capital losses, limit the proportion of your portfolio in volatile assets, such as equities. As interest rates rise, term deposits and more secure assets can offer a reasonable yield and limit the amount of volatility in your portfolio. This is particularly important for retirees, who may need to sell assets in a pension to meet their income needs. If you feel you’ve taken on too much risk during the last decade as rates fell, you may wish to rebalance your asset allocation.

2. Decide how much you’re willing to lose

While buy-and-hold is a valid and appealing strategy for many, for others it involves too much risk. The market abounds with stocks for which long-term investors would have been wise to exit sooner rather than later. Although it is very difficult to time the peak or the bottom of a market, you can choose how much you’re willing to lose on a specific asset. Experienced investors may use stop losses to force themselves to sell when a stock falls 10% or 15%, for example. With a stop-loss strategy, you can choose a specific price target or percentage fall [at which to sell].

3. Reassess your portfolio

A market downturn is a good opportunity to reassess your holdings. Some sectors that performed strongly during a bull market may fare poorly during a weak period and require a reassessment. Are you holding long-term winners or were your stocks simply the flavour of the month? Tough markets force investors to weed out less-viable investments; don’t be left holding yesterday’s winners if the future looks tougher.

4. Don’t chase losers

The extraordinary recovery after the COVID-19 crash led some investors to believe that “buying the dip” was a faultless strategy. A dip, however, can turn into a protracted downturn, and not every sell-off is a great buying opportunity, in nabtrade’s view.

5. Don’t panic

Sharemarkets can turn very quickly. Selling into weakness can result in crystalising losses that would have been profits shortly after. You may also be unable to buy back into your favourite stocks without paying a much higher price. If you don’t need to sell, and still believe your investment thesis makes sense, it pays to hold, in nabtrade’s view.


Ord Minnett 

This is general advice only and not to be taken as personal advice. Past performance information is for illustrative purposes only and is not a reliable indicator of future performance. In preparing this article, reliance may have been placed, without independent verification, on the accuracy and completeness of information available from external sources. To the maximum extent permitted by law, no member of Ord Minnett Limited nor its directors, employees or agents accept any liability for any loss arising from the use of this presentation, its contents or otherwise arising in connection with it.”



This information has been provided by WealthHub Securities Ltd the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). Whilst all reasonable care has been taken by WealthHub Securities in reviewing this material, this content does not represent the view or opinions of WealthHub Securities. Any statements as to past performance do not represent future performance. Any advice contained in the Information has been prepared by WealthHub Securities without taking into account your objectives, financial situation or needs. Before acting on any such advice, we recommend that you consider whether it is appropriate for your circumstances. Analysis (for nabtrade article) at 18 August 2022.

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