Why losing less is so important

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Why losing less is so important

Article adapted from Morningstar Investments - interview with Jody Fitzgerald, Head of Institutional Portfolio Management at Morningstar.

Compounding is an extremely effective investing tool, says Morningstar Investment Management’s Head of Institutional Portfolio Management and Solutions, Jody Fitzgerald, but it’s important to be aware of its inverse power on the downside.

The difficulties in investing in today's market

Record low interest rates have created asset price bubbles across many investment markets around the world – in other words, the price you stand to pay for an asset or investment is greater than what it’s worth – also known as its fair value. Avoiding overpriced assets is key to reducing losses. At times like this, what you don’t invest in is as important as what you do invest in.   

Identifying value for a smoother ride

When we experience volatile and weak markets, overpriced assets tend to fall the furthest. And more broadly, assets reprice to reflect their true or fair value. A portfolio that’s avoided overvalued stocks can smooth the investor’s journey, enabling them to hold on to more of their money.

A case study: Negative compounding in practice

Using a $100 investment and 10% interest rate as an example in Morningstar Investment Management’s video, Why Losing Less Is So Important, Fitzgerald acknowledges the passive returns afforded by compounding. “Compounding becomes more and more powerful the longer you’re invested, where effectively the interest that you earn continues to make more money for you.” That $100 becomes $110 after one year, or a $10 return. After another year, 10% delivers $11, without having to add any more capital to the investment.

Join the webinar


9 August 2023 // 4:00 - 5:00p.m.

We invite you join our very special webinar with Jody Fitzgerald, Head of Institutional Portfolio Management at Morningstar, one of the most well-known and respected investment professionals in Australia, who will share their invaluable insights and strategies on investing in volatile markets.

“You can definitely outperform the market in the long run by losing less in downturns. If you lose less in downturns, you’re starting from a higher base to compound off when the market start to strengthen”, Fitzgerald notes

“You don’t need to fully keep pace with the market when it’s outperforming to do better, as long as you lose less the down markets."

This Report has been issued and distributed in Australia by Morningstar Investment Management Australia Ltd (ABN: 54 071 808 501; ASFL: 228986) which is regulated by the Australian Securities and Investments Commission. Morningstar Investment Management Australia Ltd is the provider of the general advice and takes responsibility for the production of this report. To the extent the Report contains general advice it has been prepared without reference to an investor’s objectives, financial situation or needs. Investors should consider the advice in light of these matters and, if applicable, the relevant Product Disclosure Statement before making any decision to invest.   Refer to our Financial Services Guide (FSG) for more information at https://morningstarinvestments.com.au/fsg.    

Join the webinar

In our webinar, Jody Fitzgerald will explore how to capture opportunities in periods of heightened uncertainty, emphasising the importance of having a flexible and robust portfolio management process in 2023 and beyond.