Why a 10% drop in the share market shouldn't be a surprise

The week of 28 February 2020 the ASX200 had dropped by around 10%.  This has taken many people by surprise.  But should it?

Each year the ASX200 will on average decline by 10%. 

This decline may continue and be more than 10%.  What has happened so far is only the average. 

What effect will Coronavirus have?  No one knows. 

Will company prices continue to drop in the short term?  No one knows. 

What are we doing based on this week?  Going through our list of clients who were on the borderline being able to apply for Age Pension and updating their balance with Centrelink. 

The rest of the work with our clients has already been done.  For our clients who are still working, they know that a drop in prices is a great chance for them to accumulate more shares at a lower price.  For our clients who are retired, we already have a plan in place for how they are going to continue to draw an income based on a 10%, 20%, or 40% drop. 

Every 6 months we meet with our clients, and every 6 months we remind them:

You are invested in the largest companies in Australia and around the world.  The price of these companies is very volatile. 

Over time, we believe that the profit of these companies will continue to rise on average, and as a result your ownership ‘share’ will grow in value. 

In the short term, expect a drop of at least 10% once per year.  Expect a drop of 20% at least once every few years.  And expect a drop of 40-60% at least a couple of times throughout your life.
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If you have a Financial Adviser, and they haven’t had these conversations with you, they are doing you a disservice.  

​Written by Dallas Davison.