It’s perfectly normal to feel twitchy during volatile times and uncertain about your investment decisions. We understand equity market volatility occurring as a result of events such as global pandemics is a concern for many, certainly as it relates to investments.
Short-term volatility is a characteristic of investing. Share prices rise and fall but markets always rebound and, historically, long-term performance evens things out. There are good reasons to stay optimistic and see opportunity where others see gloom.
Stick to your long-term investment strategy
We understand that turbulent times bring out emotion. We are human after all. We also know that it’s tempting to follow what others are doing when it comes to reacting in the midst of chaos; however, everyone’s situation is different, which is another reason to not immediately react to short-term market volatility.
You need to make decisions based on your personal circumstances and, if investing for the long-term is part of your financial plan, you need to ride the wave rather than jump ship.
We’ve already acknowledged that markets by nature move up and down. For this reason, we always advise our clients not to panic when markets experience volatility.
We also realise that’s easier said than done, but for many reasons it’s the most logical response. Remember that short-term decisions have long-term implications.
Don’t exit the market in a panic
When markets are especially volatile it’s tempting to put all your investments in the relative safety of cash or exit the market entirely. That is not a good plan and here’s why:
- Investing in cash is low risk and low risk usually leads to lower returns.
- For long-term investment plans, you need to supplement your investments in cash with investments in other asset classes. A broad mix of investments can help you to weather market volatility.
- Being out of the market for just a few days can have a devastating impact on your investment returns, as you will potentially not be invested at the point of recovery/rebound.
Many people are naturally worried about the effects of price fluctuations on investments; however, by letting emotions influence investment decisions, investors can fall into the classic investment trap of buying high and selling low.
What you can do to feel in control during volatile times
Navigating turbulent markets in the middle of a crisis is always difficult. In the midst of a health crisis it’s near impossible because nearly everything depends on public health authorities to limit the damage, at least to human life.
So, what can you do to maintain a sense of control over your personal investments?
Separate fact from fiction.
Daily news broadcasts of markets falling don’t help twitchy investors; it’s easy to feel overwhelmed by the constant hype and fearmongering that surrounds us. But keep in mind that the media aren’t financial advisers nor are they best placed to offer investment advice.
Reassess your long-term investment strategy
Use the opportunity presented by volatile times to reassess your long-term investment strategy before making any decisions. How can you thoughtfully adjust your personal strategy to stay on track to meet your goals?
Write down your investment goals
Take the opportunity to do it now as it will help to give you some sense of control while confronting turbulent markets. Having everything written down in a documented financial plan will help you to avoid making fear-based decisions.
Seek objective advice before acting
As financial advisers our focus is clear: to support our clients in their financial and investment decision-making, during the good times and the bad. We know from experience that all market cycles are temporary, and we stand by our advice to stay focused on long-term growth not short-term gains.
Market volatility is distracting but when it comes to investments the worst thing to do is to change entirely your financial and investment plans based on short-term market changes.
It’s important to understand that you haven’t actually lost anything unless you either transfer, switch or sell your investments, so always keep your eye on the long-term.
If you are interested in discussing your investments or have any other questions our offices are open and are equipped for virtual meetings.
