The Barefoot Investor has cautioned Australians not to rush into pulling their superannuation or share portfolios out of Australian and US index funds over fears of an imminent market crash.
Scott Pape issued the warning after a reader contacted him about growing unease over their investments, prompted by recent remarks from billionaire investor Jeremy Grantham.
‘He reckons you should get out of US stocks and into emerging markets and bonds,’ the reader wrote.
‘He manages $78bn, so he seems to know a thing or two, and his arguments sound logical.
‘Is it time to move my super and share portfolio out of Aussie and US index funds? I’m 42 and want the best bang for my buck over the next 20 to 30 years.’
Grantham made the comments during an appearance on the Diary of a CEO podcast, where he encouraged investors to cut their exposure to the US and look more closely at overseas markets, claiming US shares were ‘so badly overpriced’.
But Pape said Australians should think carefully before making major changes to their super or investment strategy on the back of market predictions, no matter how persuasive they may sound.
‘Years ago I put a ring on my share portfolio. I made a vow to stick with it through the good times and the bad,’ Pape wrote.
A concerned investor wrote to Pape (pictured) over fear of a US stock crash on their super
‘History shows shares deliver the best long-term returns of all investments, even though they scare the living daylights out of you sometimes.’
Pape noted that many investors harm their long-term results by trying to time market crashes, moving money in and out at the wrong times.
‘Every crash has eventually been followed by new highs,’ he wrote.
He likened abandoning a long-term investment strategy to walking away from a successful marriage.
‘That podcast felt like the financial version of a married bloke on Tinder,’ Pape wrote.
‘The whole thing is designed to make you restless and think, “Maybe I should ditch my boring old index funds for some sexy emerging markets”.
‘That’s a rubbish way to invest your money.’
While acknowledging Grantham could ultimately be proven right about the US market, Pape said investors face an even bigger challenge when they try to time the market.
The Barefoot Investor urged Australians to keep their super invested in diversified funds (file)
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‘Now, Grantham might be right. The market could crash next week,’ he wrote.
‘But to make money from that, you’ve got to be right twice. First, you’ve got to sell before everyone else. Then you’ve got to decide when the coast is clear and buy back in.’
Pape pointed out that Grantham has consistently warned that US shares were in bubble territory since 2021, but the American market has only continued to surge.
‘Even Grantham has struggled with this,’ he wrote.
‘He’s been calling the US market a bubble since 2021. Meanwhile the market has climbed more than 100 per cent higher.’
Rather than shifting out of diversified index funds, Pape advised the reader to focus on the one thing that most long-term investors have on their side.
‘At 42 you’ve got your greatest advantage: time,’ he wrote.
‘Decades of pay packets ahead of you. Every market wobble is a chance for those dollars to buy more shares and compound.’
Billionaire fund manager Jeremy Grantham (pictured) warned that US markets were overpriced
Pape’s message to Australians thinking of changing their super is clear: remain invested, stay diversified and avoid making emotional decisions based on dire predictions.
‘Stay married to your diversified share portfolio,’ he wrote.
‘Keep some cash aside so a crash never forces you to sell.’
In the Diary of a CEO interview, Grantham said he had little confidence in the outlook for American shares in the next decade.
‘I’m not confident that US equities will be intact in five years or 10 years,’ he said.
‘Because they’re so badly overpriced today.
‘Back in the tech bubble of 2000, we had a 10-year forecast for US equities of minus 2 per cent a year for 10 years. They actually came out at minus 3 per cent.
‘From 2000 to 2010, you simply lost money in the US market. Ten years later, you had less money than you started with.
‘And I believe this market is priced even higher than it was in 2000.’
