As we witness the sharp decline in share markets here and overseas as the world reacts to the spread of the Coronavirus.
This volatility has unsettled many investors. Given the uncertainty around the coronavirus both in terms of the outbreak’s duration and its economic impact, shares may well see further short-term falls. With this in mind, it’s important to remember the following points:
- Volatility is a normal part of investing
The first point is that volatility – the movement up and down in the value of your share market investment – is normal. Historically, it’s quite normal to have 10 per cent falls, 20 per cent falls, and sometimes even deeper falls like we saw during the global financial crisis. Volatility is the price we pay to get higher returns from shares than, say, bank deposits.
- Avoid ‘crystallising’ a loss
You only suffer a real loss if you sell your shares when the market falls – otherwise it’s just a paper loss. So, try to avoid panicking and selling when markets are down, otherwise you’ll just crystallise your losses.
- Volatility provides opportunity
When markets fall it means shares are cheaper. That’s usually a good time to buy shares. It’s a far better time to buy the Australian share market when it’s down around 5200 than when it’s around 6500.
- Try not to over-react
Try to resist the urge to react or let emotions cloud your decision making. Over time, the value of your investments will go up and down, depending on market conditions. Reacting to short term adverse market conditions may mean you miss out on subsequent gains when the market rebounds.
It’s important to have a diversified investment portfolio. Different asset classes perform differently over time which helps to offset market volatility in a particular asset class.
- Remember investing is a long-term strategy
Learn to expect that there will be bouts of volatility, but over the longer-term markets typically recover from short term movements.
- Review your investments regularly
Periods of market volatility serve as a reminder to review your investments regularly.
Are concerned about the performance of your investments? This is not the time to go it alone with your investments. Please book a chat with Nicole here.
Information contained in this document is of a general nature only. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Capstone Financial Planning nor their directors, employees or authorised representatives gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document.