COVID-19 investment update: How do retirees recover?


Perpetual Private Insights

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Our resident canine friend Jasper provides an enthusiastic welcome as Kyle Lidbury, Head of Investment Research at Perpetual Private opens his door and gives us a glimpse into his home; what the lockdown measures mean for him; and how he starts his workday. Kyle also provides insight into the economic impact of the coronavirus (COVID-19) pandemic and what it means for assets such as bonds, shares, gold and property. Given the significant drawdown in markets, he suggests that pre-retiree and retirees should review their investment portfolios at this time to ensure they mitigate risks and preserve their retirement nest egg.

As lockdown measures ease in Australia, attention shifts to the economic crisis

As we go into the third month of lockdown in Australia, we’re seeing a flattening of the curve and slowing infection rates – see chart 1 below. There’s been a turning point in the health crisis with minimal new active cases and even no new cases in some parts of the country.

Chart 1: Total number of confirmed cases in each state and territory

COVID-19 Data AustraliaSource: COVID-19 Data Australia, accessed on 27 May 2020


The attention is now moving from the virus/health crisis to the economic crisis. We know that the economy has effectively been put into hibernation during the lockdown periods, with business and the economy put on hold over the period.

A recession is all but assured, with the question now being what the depth and duration of this downturn will be. The effectiveness of the government’s fiscal and stimulus measures are now being determined and what impact it will have in terms of getting business activity, unemployment, consumer confidence and spending to bounce back.

Have we seen the bottom of the market yet?

We've seen a strong rally in markets over April and May 2020; much stronger than most people would have predicted, and markets in the United States have staged a particularly strong come back.

Sectors of the market, such as healthcare and technology stocks, are back to trading at all-time highs. This ‘bear-market rally’ is not an uncommon phenomenon, however it is not certain whether this could mean we’ve seen the bottom in markets, or whether a subsequent drop could test new lows.

Historically speaking, if we look at the Dow Jones since 1890, there's been only two out of 13 crises (a drop in markets of 25% or more), where the initial bear market rally was the turning point in the recovery. On 11 other occasions, subsequent falls saw the markets reach a new bottom – with the worst being the 1929-1932 Great Depression, where the market rallied strongly eight times before an eventual bottom was reached.

Whether this current market rally is the turning point or whether we’ll see a new bottom is yet to be determined. Making high conviction investment decisions on one way or the other is fraught with risk, and generally the best approach is to retain discipline, stay invested and ensure that portfolios are rebalanced in order to maintain portfolio diversification and balance.


Is now a good time to buy property?

There has been speculation about a downturn in the property market. With unemployment forecast to rise and remain above average this year and next year, more Australians are likely to experience mortgage stress and/or have difficulty in meeting rental payments. Fundamentally, high unemployment is a significant headwind for real estate valuations.

Countering this, record low interest rates are supportive for asset values. The exact impact on real estate values is difficult to measure, however for investors with enough capital, and a long-term focus, real estate may represent good value, just like many asset classes which are trading at a discount. Being selective; investing in the right type of property with good attributes and an appropriate price will setup investors for good returns over the long-term.


Australia’s unemployment rate will likely remain high for some time

The unemployment rate is a strong health indicator of the economy; the higher the rate of unemployment, the more ‘slack’ or capacity in the economy, which means slower economic growth.

Australia's seasonally adjusted unemployment rate jumped to 6.2% in April 2020 from 5.2% in March, making it the highest jobless rate since September 20151. This was still well below market expectations of 8.3%.

The government’s JobKeeper payment has been structured to try and maintain the link between employees and employers. This connection means that, as lockdown measures are lifted, many Australians will be able to return to work quickly because they’re already employed.

Over the next year or two, its foreseeable that unemployment will remain much higher than we've had over recent years. Businesses, investors and people generally will need to find new ways to operate in this environment which creates a high degree of uncertainty in the economy. We expect markets to be volatile for some time yet.


The need for stimulus will continue beyond the next quarter

Just because we've seen a turning point in the rate of infections and businesses starting to reopen, it doesn’t mean that government stimulus is no longer required. With our international borders likely to remain closed until next calendar year, some of our biggest exports (tourism and education) will need support for some time to come. The government has indicated that its stimulus package (including the JobKeeper and JobSeeker payments) will be in place till at least the end of September 2020.


Investing in gold may not be a strong long-term strategy

It is true that in the short-term gold can outperform markets, particularly in times of crisis. However, over the longer-term traditional asset classes such as bonds and equities do tend to perform better. As long-term investors, it’s difficult to advocate investing in gold; chart 2 below shows that over the longer term, once dividends are included, gold has underperformed relative to other income-producing assets.

Chart 2: Total return stock index vs gold and silver

Market UpdateNote: Past performance is not a reliable indicator of future performance
Source: Longtermtrends,, as at 22 May 2020


Portfolio management through COVID-19: Four considerations for investors in or approaching retirement

Retirement planning through COVID-19 is an area that requires attention. We advocate that pre-retirees and retirees:


  1. Consider ‘sequencing risk’
    Exposure to markets is highest when investors enter pre-retirement and early retirement – this is generally when people’s asset levels are at their highest. Before-hand, portfolios should be positioned in order to preserve capital and take into account near terms spending needs. After a crisis where there’s been a significant market drawdown, retirees and pre-retirees should review their spending needs and lifestyle goals; with a focus on possible deferment of spending in order to maintain the sustainability of their retirement savings. For more information about how to manage sequencing risk, read ‘Protect your retirement savings’.

  3. Avoid locking-in losses
    We have seen a turnaround in markets over the past month which points to the potential for retirement portfolios to recover through this crisis. If pre-retirees and retirees can reduce withdrawals and stay invested, they may be able to mitigate the impact on their retirement portfolio.


  5. Expect a reduction in dividend income
    The recent bank reporting season saw a cut back or delay in some dividends. The reduction of dividend payments, particularly for Australian companies, may have a large impact on portfolio income, however overall portfolio returns may not drop as much. Taking a total return approach and understanding that both capital growth and income returns can be used to fund spending needs can limit the impact from cuts in dividends. To find out more about the cuts in dividend payments, read ‘Worried about dividends?’.


  7. Take advantage of the superannuation taxation environment
    You may wish to consider suspending your pension withdrawal plans from your super. By keeping more money inside super and exposed to the market, portfolio values can have more time to recover as markets eventually resume their normal upward trend. This may not be possible for all investors, see ‘Should retires consider reducing their pension payments through COVID-19’ for more insights.


Looking forward to the Federal Budget and beyond


The Federal Budget has been delayed to October 6 this year. We know that a deficit is on the cards and could amount to around 10% of Australia’s Gross Domestic Product (GDP) just this year. We expect the government to take stock of the significant measures that have been made to boost the economy as well as evaluate the deficit and the debt that will eventually need to be repaid.

The October Federal Budget would have been through the June to September quarters; a critical timeframe for much of the stimulus. This will give the government the opportunity to assess the effectiveness of its fiscal policy measures and determine whether it needs to:

  • be more targeted in its approach;
  • maintain certain programs; and/or
  • add further stimulus.

Many are expecting a reformist agenda with the government looking to address certain inefficiencies in the budget – particularly regarding the taxation system. The government is likely to be looking to what changes they may need to make (from both a spending and tax/revenue perspective) to manage the fiscal deficit and pay it down over future years.


1. Trading economics, <>, accessed on 23 May 2020.

Investing through a crisis

Now more than ever is the time to seek quality financial advice to ensure you plan well through the market crisis; in order to achieve a more secure retirement and financial future – talk to your Perpetual Private financial adviser or call us on 1800 631 381.

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Perpetual Private advice and services are provided by Perpetual Trustee Company Limited (PTCo) ABN 42 000 001 007, AFSL 236643. This information was prepared by PTCo. To view the Perpetual Group's Financial Services Guide, please click here. It contains general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The information is believed to be accurate at the time of compilation and is provided in good faith. This article may contain information contributed by third parties. PTCo do not warrant the accuracy or completeness of any information contributed by a third party. Any views expressed in this article are opinions of the author at the time of writing and do not constitute a recommendation to act. This information, including any assumptions and conclusions is not intended to be a comprehensive statement of relevant practise or law that is often complex and can change. No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor’s capital. Past performance is not indicative of future performance.