Adviser-to-client template: Valuation, volatility, and investing discipline

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, 

If the first half of 2025 could be characterised as anything, ‘volatile’ is probably the first word that comes to mind for investors. We’ve seen repeated short-term market declines as geopolitical tensions persist, including Israel’s recent attack on Iran that saw major equity indexes drop 1-2%. But just as market corrections are an expected (if alarming) feature of investing, so too is the inevitable bounceback. Looking back over the past 80 years, and 20 major geopolitical shocks, markets have typically recovered. Where stocks tend to dip about 3% in the month following a crisis, they also deliver media gains of more than 8% just 12 months later. 

So while each crisis may feel different, we urge you to remember that sell-offs are a totally normal part of investing. And as history demonstrates, these short-term bumps in the road are rarely memorable in the rearview: so the focus should be on long-term investment management principles, anchored by robust portfolio construction.

Why valuation matters

Warren Buffett famously said ‘price is what you pay, value is what you get.’ This is where our investment manager, Morningstar, comes into the picture.

Morningstar’s investment principles centre on valuation, ensuring that price is always considered when building portfolios. By avoiding overpaying for investments (especially those driven by hype or inflated expectations), it means they can limit losses when markets get unpredictable. Morningstar does this by estimating a ‘fair value’ range for each investment, avoids or minimizes the use of assets trading above their true worth, and ensure portfolios have a margin of safety built in to help withstand volatility. This means that they can maintain a buffer when volatility spikes, therefore preserving capital in rough markets.

Embracing volatility as opportunity

Volatility is where these principles become practice. Instead of reacting emotionally, market drops are a chance to buy quality assets at attractive prices. Experienced investors know that these periods present great opportunities for their portfolios, and a trustworthy investment manager like Morningstar knows that a disciplined approach allows investors to benefit from recent rebounds by acting quickly and smartly. 

Staying focused for the journey ahead

There’s little point to trying to predict every market move. But we can be prepared. Sticking to a proven process, designed to perform in all conditions and market environments, can contribute to a smoother ride for your portfolio, offering reassurance during downturns and positioning for growth when markets recover. Above all, keeping a cool head and taking a long-term view are the best things you could do you for your investment health.

On your end, there’s nothing to do. However, if you have any questions about your portfolio, or about Morningstar’s investment process, please feel free to get in touch – I’m always happy to chat.

Signoff

Important Information

As noted previously, this document is intended to support your service proposition to clients and the commentary does not constitute investment, legal, tax or other advice and is supplied for information purposes only. Past performance is not a guide to future returns. The value of investments may go down as well as up and an investor may not get back the amount invested. The information, data, analyses, and opinions presented herein are provided as of the date written and are subject to change without notice. Every effort has been made to ensure the accuracy of the information provided, but Morningstar makes no warranty, express or implied regarding such information. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or losses resulting from, or related to, the information, data, analyses or opinions or their use

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.