It’s been a volatile few days in the share market which leads to massive media coverage and invariably results in a spate of emails seeking guidance.

A 46-year-old emailed me to ask if he should switch his superannuation from growth to capital stable, and someone who is retiring in two years asked if they should move all their superannuation to cash. Either of these strategies could have serious long-term consequences, so today, I will re-state the value of shares.



Historically, shares have been the best-performing asset class. One of their major advantages is liquidity. If I’ve got a $1 million share portfolio and you have a $1 million investment property, I can sell my shares in parcels if necessary (minimising capital gains tax), but if you need money, you can’t sell the back bedroom. Of course, this unique benefit comes with a cost, which is that share prices fluctuate daily, and the price is often not an accurate indicator of the state of the company.

Because of liquidity, the value of shares continually moves up and down, but in the long term, the trend has always been upwards. History tells us that every decade has about six good years and four bad years.



The large swings happening at the moment naturally raise questions like, ‘How far are the markets going to fall?’ and, ‘Is this a good time to invest?’ I have long believed that it is never a bad time to make a good investment. Let’s face it, no one knows when a market is going to peak or hit the bottom. In any event, experienced investors know that it’s time in the market that counts, not timing the market.



Unfortunately, the average Aussie has a strange approach to investment. When a stock market boom has become well-established, they love to jump in and buy up big because they believe the boom is never going to end. When the market has one of its inevitable downturns (as it is doing now), they stay away in droves or, worse still, sell out at the worst possible time. All this does is turn a paper loss into a real one.

A classic example of the folly of trying to time the markets is the story of clients of Peter Lynch, the legendary manager of the Fidelity Magellan Fund. In the late 1980s and early 1990s, Lynch’s fund was one of the best-performing mutual funds in the world. Despite this, studies later showed that the average investor in the fund earned significantly less than the fund’s overall returns. Why? Because investors repeatedly tried to time the market by buying when the fund was doing well and selling when it was performing poorly instead of riding out market volatility. By letting fear and greed dictate their decisions, they bought high and sold low.

This behaviour illustrates how difficult it is for even experienced investors to time the market effectively. Over the long term, trying to predict short-term market movements typically leads to poorer outcomes than simply staying invested and benefiting from the overall growth of the market.





I have always suggested that retirees keep at least three years’ planned expenditure in cash-type assets to give themselves an alternative source of funds to ride out market downturns. However, they should keep in mind that rising life expectancies mean that they probably have 20 or 30 years of investing ahead of them. No one should stay mostly invested in cash for that long.

Despite the current volatility, investors have done well over the last few years. An investment of $100,000 in January 2022 in a fund that matched the All Ordinaries Accumulation Index is now worth $115,000 – a gain of 15% per annum. The same investment made in January 2000 is now worth $723,000 or 8.6% per annum, which matches the long-term return on Australian shares for the last 120 years. So don’t be scared of shares’ volatility.

About the author: Noel Whittaker, AM, is the author of Wills, death & taxes made simple and numerous other books on personal finance. An international bestselling author, finance and investment expert, radio broadcaster, newspaper columnist and public speaker, Noel Whittaker is one of the world’s foremost authorities on personal finance. Connect via Twitter or email ([email protected]). You can shop his personal finance books here.


Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Always seek professional advice that takes into account your personal circumstances before making any financial decisions.