Adviser-to-client template: Address Market Uncertainty

For financial advisers to use with clients. This document is intended to support your service proposition to clients. It is produced by our investment writers with a deliberately light tone and structure. However, these are guidance paragraphs only. It is not guaranteed to meet the expectations of regulators or your internal compliance requirements. If you wish to remove or amend any wording, you are free to do so. However, please bear in mind that you are ultimately responsible for the accuracy and relevance of your communications to clients. 

Dear client, 

I want to take this opportunity to acknowledge your concerns about the current market volatility and perceived uncertainty. It can be quite discouraging to see the cost of living continue to rise at a time when investment markets seem to be treading water, as they have been doing for a few years. 

Indeed, we’ve faced a challenging time for all types of investors—from conservative to growth-focused—with the market presenting a mix of ambiguity and only selected opportunities for growth. We’ve endured a major reset in the economy, with higher interest rates causing a big change in sentiment. Even defensive-minded assets like bonds have experienced uncertainty. But it’s important to remember that it is precisely in such periods of volatility that the seeds of future growth are often sown. For example, we now have investments in your portfolio that are locking in sizeable yields, so we have a new baseline to grow from. 

Moreover, we still have every reason to expect markets will trend positively over time, even off the back of challenging economic conditions. Below we share some evidence, where we can see that global stocks have been positive in 26 of the last 36 years, with 7% gains on average excluding dividends. However, in every single one of these years, we’ve seen a decline (the red dots) and the average decline has been right around 15%. So, it’s extremely normal for the markets to misbehave as they trend higher. The message we want to get across here is that market setbacks are the price you pay for healthy returns. 

Source: Clearnomics, Morningstar Wealth, MSCI. 

On a brighter note, the investment team at Morningstar Wealth have been busy identifying some opportunities ripe for exploration. After conducting thorough research and analysis, they are becoming more optimistic after the reset, with certain asset classes and sectors that could provide attractive rewards relative to the risks involved. In some instances, where markets have sold off, we acquire these assets at attractive prices, seeking to improve long-term growth and income. Many of these opportunities are augmented in your portfolio already. This underlines the importance of not viewing the current market environment through a backward-looking lens but exploring every facet of it for potential growth. 

Uncertainty is Difficult, but Patience Pays  

We’ve not made the progress we hoped for in the last few years, but we remain confident in your financial setup and we have avoided the major dislocations to date. In some respects, your investments are holding up better than you might perceive. As one small example, those who invested heavily in long-dated bonds—which can especially appeal to some retirees—have fallen as much as 48% since inflation took off from 2020 to today1. That’s similar to what stocks experienced in the financial crisis.  

Remember, investing requires consistent effort, discipline, and the ability to ride through the highs and lows. I want to assure you that despite the challenging market conditions, we believe that your current portfolio is still well-positioned to meet your financial goals. Our goal has always been to align your portfolio with your risk tolerance and long-term objectives, and we stand by that commitment. The key now is to continue making informed decisions and stay the course. 

I am always available to address any questions or concerns you may have about your portfolio or any other financial matter. Your financial progress is our priority, and we are here to navigate turbulent waters alongside you. Brighter days lie ahead, even if it may require a dose of patience. 

I will continue to share valuable insights that will aid you in making informed decisions, keeping your long-term financial goals in sight. If you’d like to discuss any of the above, please don’t hesitate to reach out.  

Regards, 

Adviser  

1 Source: Morningstar Direct, from 31 July 2020 to 25 September 2023. Morningstar UK 10+ Yr Core Bond GR GBP index. 

Since its original publication, this piece may have been edited to reflect the regulatory requirements of regions outside of the country it was originally published in. This document is issued by Morningstar Investment Management Australia Limited (ABN 54 071 808 501, AFS Licence No. 228986) (‘Morningstar’). Morningstar is the Responsible Entity and issuer of interests in the Morningstar investment funds referred to in this report. © Copyright of this document is owned by Morningstar and any related bodies corporate that are involved in the document’s creation. As such the document, or any part of it, should not be copied, reproduced, scanned or embodied in any other document or distributed to another party without the prior written consent of Morningstar. The information provided is for general use only. In compiling this document, Morningstar has relied on information and data supplied by third parties including information providers (such as Standard and Poor’s, MSCI, Barclays, FTSE). Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Morningstar nor its third parties accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included. Past performance is not a reliable indicator of future performance. Morningstar does not guarantee the performance of any investment or the return of capital. Morningstar warns that (a) Morningstar has not considered any individual person’s objectives, financial situation or particular needs, and (b) individuals should seek advice and consider whether the advice is appropriate in light of their goals, objectives and current situation. Refer to our Financial Services Guide (FSG) for more information at morningstarinvestments.com.au/fsg.  Before making any decision about whether to invest in a financial product, individuals should obtain and consider the disclosure document. For a copy of the relevant disclosure document, please contact our Adviser Solutions Team on 02 9276 4550.