Diversification is the balancing force

Market volatility naturally makes investors nervous, but it is good to keep in mind that volatility traditionally tends to be a short-term concern. History tells us that markets have always recovered in the past and the size of the upturns in the market has always outweighed the size of the downturns.

Australian shares recorded their worst year on record in 2008 when the All Ordinaries Index fell 43%. Share values have fluctuated markedly since then, but the market is trading more than 64% above its value at November 2008.

It’s also important to remember that the total return on shares includes the tax-effective dividends you received along the way, so share prices are only part of the picture. While it is difficult to dismiss short term losses, remember wealth is built over the longer term.

In the current environment the need to remain committed to a long-term investment strategy is crucial. This can best be achieved with a portfolio containing well researched and carefully selected growth assets such as shares and property supported by good fixed interest assets. As each investor has their own individual circumstances you should speak to us before making any decisions about your portfolio.

Strategies to handle volatility

When the headlines are screaming doom and gloom, this is the perfect time to...

  • Remember that markets will eventually stabilise and the share market will recover. Try not to panic.

  • Avoid the flight to cash. There’s an old saying in the investment community—until you sell you haven’t lost anything. By selling now, you not only realise any losses but miss the opportunity to benefit from the subsequent market rebound.

  • Maintain a diversified portfolio as different asset classes will experience rises and falls at different times. It is impossible to predict which assets and sectors will recover first.

Remember you are not alone - discuss your concerns with your financial adviser – that’s what we are here for.

Sometimes it might seem like the sky is falling, but this has happened before and no doubt it will happen again. It’s all part of a big cycle.

 

Sources:
ASX website (www.asx.com.au)
Australian Securities and Investment Commission website (www.asic.gov.au)
www.econstats.com