Market downturn could ‘burn’ first-time investors

The wave of retail investors accessing the stockmarket for the first time is encouraging for financial literacy and engagement but they could be put off for good if there is a market downturn, according to Airlie.

Over 435,000 people placed their first trade in 2020 and the Australian Securities and Investments Commission (ASIC) warned they should be aware of their risk exposure and wary of trading strategies, especially as 49% were under-40.

Speaking to Money Management, Emma Fisher, portfolio manager on the Airlie Australian Share fund said it depended on the time horizon that people were looking to make money. She also cautioned on the long-term effect on the boom in the event of a market downturn.

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“I’m a fan of people being emboldened to invest, so long as it is money they don’t need to get back, and it improves their financial literacy,” She said.

“It’s good that people are getting engaged with finance. If people are happy to tie up their money for a decade then that is fine, even if they are investing at the peak, but if they are looking to make money in six months then I would be less confident. The saying is if your dentist is asking for stock tips, that is the time to get out.

“I’m worried that if there is a sharp downturn then people might get burnt and be put off investing in the stockmarket ever again which would be a shame as it is an excellent tool for value creation.”

She gave the example of the US dotcom bubble which later fuelled the housing crisis which precipitated the Global Financial Crisis as investors were moving their speculative trading activity away from equities and into property.

“It was the same type of risk behaviour but just in a different asset,” she said.

The Airlie Australian Share fund had returned 37% over one year to 31 August, 2021, versus returns of 30.7% by the Australian equity sector within the Australian Core Strategies universe.

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