With the S&P/ASX 200 (INDEXASX: XJO) falling 5.9% in September and losses continuing into October, many retirees face the prospect of their portfolios having not just declined nearly 6% in 30 days, but also they must deal with the realisation that their portfolio's value may now be lower than it was at the start of the year.
One of the reasons some retirees' SMSF accounts have declined is because many funds are heavily weighted towards a few major large capitalisation 'blue-chip' stocks which have a significant bearing and influence on the ups and down of the wider index.
Telstra Corporation Ltd (ASX: TLS) for example fell 4.7% in September, Woolworths Limited (ASX: WOW) dropped 5.3% and Commonwealth Bank of Australia (ASX: CBA) sunk 7.4%.
That's certainly no catastrophe but it may be a shock to investors who have grown used to the bull market which has been powering stocks higher for years now.
For investors who have been enjoying the multi-year bull market, the recent pull-back shouldn't be alarming but it is perhaps an opportunity to reassess the best strategy going forward to make sure your portfolio value keeps growing over the long term, despite the inevitable market declines.
Arguably, the best days of earnings growth for some blue-chip stocks are now behind them. There is also the very real concern that all the future growth is already fully priced in to some blue-chip stocks, which would suggest only average returns, at best, going forward will be achieved.
For investors who think the above analysis could be accurate there are at least two ways to respond. One is to buy an index tracker, which would still give them weighted exposure to defensive blue-chip stocks but it would lower their direct exposure to any single stock. This strategy won't provide outperformance (by definition it will provide an average return) but given the long-term average gains from the stock market it should provide a reasonable growth rate. Secondly, they can look to adjust their portfolio into undervalued stocks…
