What is Market Volatility and how do I deal with it?
In 2016, Share market volatility has become a daily part of news headlines.
The unusual volatility that has taken hold of financial markets in recent weeks is resulting in some impressive moves up in asset prices and many more harrowing declines. Analysts suggest this will be with us for a while.
It’s only natural to be concerned about how these fluctuations might be affecting the value of your investments. It can also be tempting to take actions that, in the longer term, may prove to be inappropriate.
Everyone has heard of the term “market volatility” but what is it exactly?
Market volatility is the term given to the investment market when prices go up and down – this can sometimes be sudden and unexpected. The cause of volatility is anything that could potentially affect company earnings.
The Global Financial Crisis in 2008 is a perfect (albeit extreme) example but it highlights how volatile share prices can be. Today, with changes in emerging markets, the price of key resources and the on-going disputes in the Middle East, we are experiencing a return to volatility.
When it comes to dealing with the volatility, it is important not to get distracted by short term movements in financial markets – even the good ones. Instead, it is best to stick to your long term strategy based on your circumstances, risk tolerance, goals and recommendations from your Adviser.
In most cases, the longer you stay invested, the more likely it is that you will ride out the highs and lows of market volatility.
Investment markets can and do change overnight. They are affected by other markets, the publication of annual and bi-annual results; political and economic changes around the world – and rumours! But that doesn’t mean you have to change with them. Here is some information to help you stay focused on what’s important.
- Stay calm
Do not rush any investment decision.
- Diversify your investments
It’s notoriously difficult to predict what’s going to be the best performing asset class in any given year. Diversifying investments across asset classes allows you to benefit from each year’s best performing asset classes. It can also help you smooth out the volatility of your returns.
- Spend time in the market
One of the most powerful features of long-term investing is the ability to benefit from compound returns. By staying invested, as opposed to regularly entering and exiting the market, your investments have more time to grow and earn returns.
- Monitor and review your investment strategy
Like most things in life, it’s a good idea to regularly review your financial plan to make sure it’s still right for your current financial situation.
- Seek professional financial advice
A Financial Adviser can help ensure your strategy meets your needs, and even help you update it as your circumstances change. With a clearly defined strategy and goals, you can have the confidence you need to withstand market fluctuations.
Why not schedule a meeting with your Financial Adviser now to discuss any concerns?
Disclaimer – Information current as at 24 March 2016 – This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication. You should read the Product Disclosure Statement (PDS) before making a decision about a product.
This article originally appeared on www.matrixplan.com.au.