Market Volatility – Where to next?

It has been a tough six months for investment markets and times like these can be stressful.  No one likes to see the value of their investments decline and you may well have asked yourself if a change is warranted.

Whilst a more conservative approach may assist your short-term concerns you’ll find no joy in bank interest rates.   At a later stage you must decide when to return to your long term investment strategy.  Timing your investment decisions to ‘’pick’’ the market is virtually impossible and invariably is more costly than having a plan and sticking with it.

Too often emotional biases can override rational thought.  Sometimes, the hardest thing is to do nothing.

Here are some things worth considering in your investment decisions:

• Have your goals changed?  What are your investment goals and time frame for investment – if these haven’t changed then why should the strategy?  It is often important and comforting to reflect on the bigger picture.
• Keep in mind the importance of diversification.  Diversification can offer two distinct benefits – moderating your chances of capital loss and reducing the volatility of your returns to give you a smoother ride.
• History tell us…..  Even though the investment environment may be challenging, the current market cycle really shouldn’t be viewed any differently to previous market cycles.  Markets rise and markets fall, inevitably they will rise again.
• When do you make the call?  Trying to time investment decisions is fraught with danger.  By selling your investments immediately after a market down turn you’re not only incurring losses, you’re reducing your chances of making the money back once markets do recover.
• Do you need income?  It’s not always about the value of your investments. The historical average dividend yield of the Australian share market sits around 5% pa.  Add the after tax franking benefits available to retirees and you might boost this figure by a further 1.5% to 2%.

Investment results are more dependent on investor behaviour than on investment performance.  Investors who hold their nerve are more successful than those who try to time the market.  The reality of investing in the share markets is that we need to accept some risk when seeking rewards. A bit of risk is what will help your investments outpace inflation and bank interest rates in the long run.

Volatility is nothing new, so turn down the noise and focus on your personal strategy.