In recent months the media has been abuzz with headlines of stock market volatility, global market chaos and threats of financial doom and gloom. Rarely a day goes by without someone providing their two cents worth on how investors should act during times of market turbulence. Seeing these headlines every day, you might be asking yourself, is there really something to be concerned about?
While it is true that there have been notable fluctuations in share markets around the world, the fact is that uncertainty and risk are part and parcel of investment. This is why we put investment strategies in place to ultimately achieve our investment goals.
That said, when markets get rough, it can be difficult to sit tight. So if you’re feeling uneasy remember:
Strategy is King.
Having an investment strategy is a sound way to put a plan in place that takes into account your return objectives, the amount of time you have to invest and your appetite for risk. Emotion-based actions, like departing from your strategy at the first sign of volatility, can reduce the likelihood of investment success and can be a major downside risk. Whilst it may be difficult to sit still during a volatile market, experts suggest that this is exactly what you should be doing – if of course you have a considered investment strategy in place.
Moderate your media.
It’s easy to feel anxious from news headlines warning of a share market collapse or that a billion dollars has been wiped off the stock market, so be wary of sensationalism. You rarely see a headline that says a billion dollars was added to the share market. A lot of financial news is written as an up-to-the-minute analysis, rather than a long-term assessment. It is fear-based and dramatic to get readers interested. Be aware of what you read and listen to and keep in mind that the media is not there to give you financial advice. To quote Warren Buffet, “Over the long term, the stock market news will be good”.
Be careful with family and friends.
Those close to you may mean well, but ultimately your investments should reflect your personal circumstances, and taking advice from relatives and friends during times of market volatility may not always be the best idea. Whilst you and your best friend may share a golf swing or drive the same car, your financial situation is unique to you. You may wish to discuss your finances with those you trust, but check in with your financial adviser before making investment decisions.
Review your risk profile.
Your preference for risk should be accurately reflected in your risk profile, which guides your investment strategy. If the recent market volatility has you concerned, maybe it is time to review your risk profile so that you can rest in confidence that you have the appropriate strategy in place. If you find that you can’t sleep at night, contact your financial adviser to discuss your concerns.
Cast your eye to the horizon and keep a cool head.
During times of market volatility, it can be tempting to ‘time the market’ – that is, to buy or sell investments based on a prediction of how the market will behave. Whilst timing the market may seem lucrative in light of the potential gains that seem possible, the downside risks when you get this wrong can be detrimental. Rather than reverting to short-term thinking, keep your eyes on the long-term horizon and stick to your plan.
The specific reasons for market fluctuations will always be different, but more often than not share markets return to a state of equilibrium after periods of turbulence. If you’ve considered the above points and still feel uncomfortable about how your investments will fare, it might help to speak to your financial adviser.