There’s no denying investment markets have been challenging so far in 2016, with many superannuation funds and managed investments reporting annual returns well below zero.
And there’s no shortage of experts willing to share their views on the reasons why – But the question our clients are asking most is what to do about it!
So here are our top 5 tips on how to invest in periods of volatility:
1. Remember why you’re investing in the first place
For most people, investing is part of a long term strategy to build wealth or fund their retirement – So whilst it would be great to earn good consistent returns year in year out, in reality the return for one year is much less important than the average return over a much longer period.
However, if your investment strategy is no longer consistent with your goals, its time to re-think.
2. Go for quality
Periods of volatility will often lead to opportunities, as the price of good quality assets get pushed down along with the poor. During the GFC we saw fantastic buying opportunities on many blue chip Australian shares with strong earnings, and balance sheets. Astute investors took advantage of this opportunity to build long term wealth.
3. Drip feed
‘Dollar cost averaging’ is the technical term for what most of us simply think of as a drip feed strategy – investing a small amount regularly for a long period of time, and its the way most of our super funds work.
When markets are weak, your small regular investment will give you more bang for your buck, as the investments you are buying are effectively ‘on sale’. When markets eventually rise, it will be the contributions that you made on the worst days, that give you the greatest value.
4. Remember it’s not all or nothing
If you’re losing sleep over your investments, its a good sign that you have invested more aggressively than you should have – and some changes may be warranted.
But rather than selling the farm, it may be appropriate to consider rebalancing your portfolio in light of the market reality. Often a review and rebalance strategy will help refocus your investments to better suit your needs.
5. Get some good advice
No surprises here. We’re always keen to discuss your investments, and to customise a solution that best suits your unique circumstances.
If you wish to discuss the current market conditions and your reaction to them, please don’t hesitate to call either myself, or Sam.