Client Question: How is the current state of the market affecting my portfolio?

The markets have finally woken up to the threat of Coronavirus on global growth, what does this mean to you?

I thought that sharing a recent conversation with a valued client might help explain how I usually approach the question.  

Recent email received:

Hi Tim,
I logged onto my Model: Nucleus Tactical Foundation Diversified super but don’t see a way to change it and I’m not sure that I should.
I don’t know if I’m paying for advice but will ask you, – should I change my super account to be less exposed to further potential down turns?
I know this is a guessing game.

Thank you,
(Valued Client)

Response:

Hi (Valued Client)

We can always switch the account to cash when you are ready if you like, but I thought it might be worth running through what is actually going on in your account first. (from your client portal below).
 
 
As you can see, you currently have a hugely overweight defensive position in the portfolio – this is currently the most conservative that we have ever been. Yes, there is still some equity risk, but keep in mind that this portfolio should always have some equity risk, especially when it is supposed to have up to 65% equity!
 
The crucial part here is that exposure to assets that have some upside (in this case the Fed Bonds and USD cash holding) which provides safe haven, and a ready war chest of dry powder for when equity markets start to stabilise again.
 
Here is an idea of what the protection in the portfolio is doing for you (against a full equity ASX100 index based portfolio).
 
 
In this example, you are currently feeling 10% of the full effect of the markets. But retain 100% of the upside when we dive back in again – which is MUCH better than cash.
 
Happy to chat further,
 
Cheers
 
TF