In recent months, there’s been a lot of volatility in the market. We’ve seen interest rates increase and the share market fall, and now economists are predicting a global recession. If you’re an investor, it’s easy to be spooked by the news and feel the pressure to make reactive decisions – but choices driven by emotion can end up costing you down the track.
Here are our three tips for weathering market fluctuations.
Setting goals provides a road map for your financial success. When the market is volatile, you’ll be less inclined to make rash decisions as your focus will be on your long-term strategy.
When it comes to setting goals, a good rule of thumb is to make them SMART: specific, measurable, achievable, relevant and time-bound. Importantly, your goals should be yours and not influenced by others.
A good investment tip is to widen your investments through diversification. With this strategy, you allocate your investments across various asset classes such as shares, property, bonds and private equity. It reduces risk as different assets do well at different times. So, if the return on one investment is falling, the return on another may rise, which offsets the poor performer.
Investors naturally become nervous when there’s a market downturn, but it can offer some opportunities. For example, you may be able to buy assets at discounted prices. The key is to act cautiously but be vigilant in monitoring the market for possibilities.
Timing the market is a strategy in which investors try to buy stocks before their prices go up and sell them before their value goes down. But it’s extremely difficult for many investors and is financially risky. Instead, take a long-term view of investing where your focus is spending time in the market. By doing this, you’ll ride out various market cycles, which increases your chances of achieving a positive outcome.
If you're interested in crafting a long term investment strategy, speak to us today.