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There is a popular phrase thrown around by teenagers that also applies to investors: FOMO (fear of missing out)

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Recently, we have been closely watching market valuations that have been indicating overpriced equity markets and it has us concerned. I liken the current state of the markets to that of the movie, The Big Short, which was based on   the GFC (Global Financial Crisis) (If you haven’t seen the movie and would like to know what’s happening in our current markets I urge ask you to watch it this weekend.)

Although we still have exposure to some growth assets including certain shares in both Australia and various regions, Having watched people’s wealth being destroyed during the GFC, has made us overly conservative has made us highly conservative for two reasons:

  1. Our job is to preserve our client’s wealth during both good and bad times
  2. If the bad times occur, we don’t want to be in a position where we simply must ride out the loss of capital. We strive to be in a position to be able to buy, great, however,  oversold, assets with cash.

Be Frightened:

It frightens competent money managers and planners when they at the above chart and ask themselves why are people now moving out of conservatively run portfolios toward overly aggressive investment and Industry Funds. Maybe it’s the FOMO or slick marketing, however, it is disconcerting us hen we observe investors making such life-changing decisions without the right education resulting in giving their hard earned money to managers with vested interests, and little accountability.

The large yellow bars are the market bull runs. These bars are impressive and long. Often in the later stages is when everybody becomes an expert, but you need to all look at the smaller blue bars which are short and harsh.

The last yellow bar is the current state of the US Index, the longest bull run in history with valuations that are also the most overvalued in history. Will the Fear Of Missing Out {FOMO} wipe 51% off your hard earned fund balance as it did just 11 years ago, or maybe just 43% like during the Tech Wreck of 2001?

We are facing scary times, which is why we have been extremely conservative over the past two years, However, If the worse case scenario were to occur, I am confident that, while many investors could potentially see great losses within their portfolios, we will be well placed to take advantage of great undervalued assets.”

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