Taking the Plunge

You may have noticed that the share market has been on a roller coaster ride recently.

Disappointing retail sales news in the US set off a downturn in the Australian and International share markets . These losses have since been recouped however further volatility in the share markets is anticipated.

The volatile nature of the share market may lead you to take action which may serve to magnify or crystallise your losses. In my blog “Be Fearful When Other’s Are Greedy“, I highlighted the pitfalls of following the herd and investing without regard to underlying fundamentals. The same message can now be applied to selling assets without regard to the reasons why the investments were made in the first place.

The article – Why Emotional Decisions May Be Ruining Your Investment Return by Cheryl Sherrard – shows how some investors have fared worse than institutional investors in times of volatile share markets. Here are some suggestions in times of a volatile share market:

  1. Be patient
    If you have a financial plan, including a carefully constructed investment strategy, which
    – maximizes your risk adjusted returns
    – is in line with your risk tolerance
    – and has been rebalanced
    then you should do nothing and be patient.
  2. Review the performance of your investments
    After a period of time, review the performance of your overall investment strategy and associated investments to see if they have performed as expected. If the performance is less than expected, then it may be time to make an adjustment.
  3. Filter the media
    Don’t totally discount what is being published but at the same time, apply a filter and exercise caution. There is an endless source of information to digest and it is worthwhile having a trusted adviser to guide you on what to do. They will help you avoid making big mistakes, taking on unnecessary risks or making hasty decisions and crystallizing your losses.
  4. Review your risk
    A share market correction is a good time to check your portfolio’s risk and your own risk tolerance. You may have not received appropriate investment advice and taken on too much risk in the expectation that there would be minimal volatility and that it was a good time to invest. Now is a good time to see how your portfolio has performed and to assess how you are invested for the future. Ensure you are maximizing your risk adjusted returns.
  5. Search for undervalued investments
    By using an active investment strategy compared to a passive one, volatility in the share market provides opportunities to increase your investment in companies which are now undervalued. The price you pay for an investment will have a major impact on the return you will achieve. If you can invest at a time when the price is down, you will achieve a better return.

If you would like to review your investment strategy to see how well prepared you are, please call me on 0499976059.

 


General Advice Warning: Any advice on this site is general advice only and does not take into account the objectives, financial situation or needs of any particular person. It does not represent legal, tax, or personal advice and should not be relied on as such. You should obtain financial advice relevant to your circumstances before making any decisions.


General Advice Warning: Any advice on this site is general advice only and does not take into account the objectives, financial situation or needs of any particular person. It does not represent legal, tax, or personal advice and should not be relied on as such. You should obtain financial advice relevant to your circumstances before making any decisions.