Global market volatility brings a range of challenges, but when downturns come around there is always an emphasis on the long term – why?
- The long term counts The challenges of short term investing
- What’s the big picture? 6 months, 5 years, 20 years, 100 years…
- Look past media hype – what are your goals?
- What you can remember…
The long term counts
It will depend on your personal investment strategy and goals, but everyday ups and downs in the market don’t necessarily reflect the underlying quality of the investment. Even larger scale market volatility, such as across international markets, doesn’t change the good quality of an underlying investment. The unit price or share price may decline, but if the investment is good and it matches your growth strategy, in many cases the investment will remain a suitable way to create wealth.
Short-term volatility – whether for a day or even a couple of years – usually reflects the panic and personal choices of millions of investors. Impatient investors don’t want to wait, or can’t wait, to see the full extent of any returns.
Riding out short-term fluctuations allows the quality investments to shine through the tough times and come out the other side with solid returns.
Short-term investors have a more difficult task, as returns in the short-term can be unexpectedly volatile.
Take a look at the graphs. The short-term volatile returns could make an investor nervous, but the long-term results show much smoother returns. Specifically, take a look at the volatility over the 1990s, and the escalating returns over the 2010s.
All Ordinaries Index – Short Term
July 2008 – September 2008
All Ordinaries Index – Long Term
August 1984 – August 2008
What’s your big picture?
Consistent meetings with your adviser can draw attention to results and comparisons, perhaps to give you a different view of overall returns. For example, consider that (as measured by S&P/ASX 200):
Over the past six months, to 22 September 2008: The Australian share market is down 0.33%.
Over five years, to 30 June 2008: The Australian share market is up about 17%
Over 20 years, to December 2007: Australian shares delivered a gross return of 12.7% a year.
Alternatively, take a look at the Australian share price movement over 100 years.
The economy is enormously complex – particularly when you factor in every possible investment – and not even market analysts know for sure what will happen next.
However, sometimes news is presented as so shocking that it is hard to look past. The reality is that media headlines don’t necessarily show the real situation or impact, and certainly doesn’t claim to show any insight into your personal situation. The media sells excitement!
We all need to be the editors of our own news – rather than worry unnecessarily, first get as much information as you can, including a discussion with your adviser before making any decisions. That way, the news and information is personalised to your own situation.
What you can remember…
Diversify – reducing your dependence on just one area of the market can sometimes balance the ups and downs of the market more effectively. This might mean spreading your portfolio over a range of different asset classes, such as shares, fixed interest, cash, property, or across different countries and investment managers.
Short-term market fluctuations are not a good measure of the long-term quality of an investment. Reviews with your adviser will help you stay on top of your goals and investment needs – and may even help you sleep better at night during a market downturn!
Changing investments in a panic can produce unnecessary risks and loss of long-term benefits.
Know your own goals and strategy. Everyone invests for different reasons – while one investor wants long-term financial security for retirement, another investor is saving a deposit for a home. This step can be overlooked when people start out, but your goals will affect the types of investments you choose, and can help you make decisions throughout the life of your investment as well.
See your adviser. Talk to your Count Adviser about how to get the most out of your investments, and how to create a portfolio suited to your needs, timeframe, and goals.
General advice warning: The advice provided is general advice only as, in preparing it, we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives.