Thousands of new investors and thousands of lost dollars. Here’s why you shouldn’t join the masses of beginner investors taking advantage of share market volatility during the coronavirus (and where you might invest instead).
COVID-19 has turned the world of share investing upside down. And if we had a dollar for every person we’ve heard say, “Now’s a great time to invest in shares,” well… we’d use that money for a better investment than shares.
That’s because you need to understand the stock market to make a stable income from it. And many just don’t have that understanding. Below is proof.
Rolling the dice: Share investing during COVID-19
Think TikTok has become popular with your kids? Try the ASX for anyone with spare cash and a tip from their mate they should buy cheap shares.
In the 40 days after February 24, 2020, ASIC recorded 4,675 new ASX investors per day. That’s a whopping total of 140,241 new share investors getting in line for COVID-19 stock bargains during that 40-day period. New accounts made up 21.4 per cent of all active ASX accounts.
So, new investors flocked to buy cheap shares, swimming against the tide for their first dip in the ASX ocean.
Did it work? Of course it didn’t.
Time in the market vs. Timing the market
New investors turned out to be very – very – poor at share investing at a time when ‘undervalued shares’ was on everyone’s lips at the water cooler.
The AFR outlines ASIC’s report, stating:
“On more than two-thirds of the days on which retail investors were net buyers, the share prices of the stocks they invested in declined the next day.”
And it wasn’t just those bullish investors who lost out. On more than half of the days investors were net sellers, their dumped stock rose the next day.
The accessibility of the share market and the ease it allows to sell and buy shares caused a real mess for newbies when the coronavirus shook up our markets. The ASX had its worst performing year since the GFC and many new investors won’t use their CommSec account again as a result (at least until the next pandemic).
I can’t shake my head at novice investors trying to increase their wealth. I applaud and condone the idea. But having the patience to buy and hold may have served them much better.
Want an alternative? Invest long-term
We’ve harped on about how property performs better than shares in a global financial crisis.
From the 1982 and 1989 recessions, to the Dot Com Bubble and 2008 global financial crisis, Australian real estate values rose. Stock market values didn’t.
That’s because real estate has the right armour to protect us investors when a pandemic, a trade war, or even a Trump, makes an unexpected appearance.
Land value is slow to move, unlike the rollercoaster ride that leaves many share investors dizzy and declaring a capital loss. Stability, and the inability to buy and sell quick, keeps land values from spiralling out of control.
Property allows investors to focus on what’s in their control over the long-term, instead of hoping for quick wins in the share market. For example, property investors can control their gearing by paying down debt and regaining some equity. Commercial real estate investors can even look to upgrade the tenancy profile in their investment.
What to invest in? Residential or commercial?
The residential market is firing in some precincts, and sure, a lot of this can be owed to government grants pushing up demand and packing out realtors’ weekends.
Commercial real estate investment continues to provide excellent returns. Large Format Retail, particularly homemaker centres, has seen tenants thrive in unprecedented times. Our big box retail centres are still giving investors annual returns from 7.1 per cent and up.
We’re also seeing value in industrial property, where many businesses, such as those in logistics, have thrown on capes and saved the day as essential services during the pandemic. The huge uptick in online retail for customers in lockdown has meant logistics and last mile operators have stepped up their game.
Where to invest? East or west?
As of this writing, West Australia is almost COVID-19-free. Businesses are back to it as usual and foot traffic has resumed. Meanwhile, the east coast has entered a new pandemic battle, but all is not lost for the commercial property investor.
In Victoria, where the coronavirus has begun (and already slowed) its resurgence, there are brilliant unlisted property investment opportunities.
Victorian Premier Daniel Andrews is preparing to inject up to $18 billion in job-creating spending over the next two years. A blueprint for 66 projects will transform Melbourne’s north and west precincts and add up to 30,000 new jobs. Want a tested investment strategy? Follow the infrastructure spend.
We’re excited to see commercial real estate continue to provide stable income and capital growth opportunities to experienced investors, and those joining unlisted property trusts.
So, the next person you hear say, “Now’s a great time to get into shares”, just say the words, “Time in the market” and keep saving for your next residential or commercial property investment – or your next investment in an unlisted property trust.
Properties & Pathways is a commercial property investment company in Australia. We handpick our properties to reduce risk and protect investor return. The strategy works. Our completed syndicates have provided investors an average return of 15% pa. Get in touch to find out how we work.