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What to do in volatile markets?

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If you are invested in the sharemarket, you are understandably concerned about the recent volatility in investment markets.

Further falls on the Australian stock market, twelve consecutive days in a row, will cause further concern for us all!

So what should you do?

There is no way we can predict the market short term and neither should you. And let's face it, if you are investing in growth assets such as Domestic Shares, International Shares or Property, you should have an investment horizon of at least 10 years.

Don't be fooled by short-term volatility

Even though the graph below is several months out of date, it is still relevant. It illustrates the point that even last year the All Ordinaries was volatile, as depicted by the blue line.

Source: Macquarie Bank

If we compare 1 year volatility of the All Ords to a rolling 10 year period, one can easily see that volatility almost disappears and is pretty much a flat line about 5% higher than cash rates.

Are you emotionally involved in the markets?

Ok, we all are! But we shouldn't be!

The graph below shows that most likely we all bought more shares at the top of the market, carried away by the euphoria of a raging bull market.

Though now when markets have been slammed, we are looking at ourselves in the mirror wishing we never knew what a "share" was. However, this is the time when we have the least to lose i.e. we have already lost money and as long as we can carry the position, time suggests that the market will rebound.

Obviously we are talking about blue chip stocks and not penny dreadful stocks. Take this opportunity to critically assess your portfolio of investments and get rid of anything that you bought on a BBQ tip or that is not considered blue chip.

Source: Nick Pantu - Financial Planning Presentation

So the question remains - What to do?

1. Critically assess your portfolio of investments and get rid of anything you think is not blue chip and/or a long term viable investment.
2. Think about buying more or getting into managed funds and or blue chip stocks.
   1. Take a look at our Market Leaders product. It's a simple and cost effective way to invest directly in the Top 20 ASX stocks by market capitalisation.
   2. We cannot control the markets, but we can control fees. Make sure you are not paying entry fees when getting into managed funds. InvestSMART rebates 100% of all entry fees.
   3. If you already have managed funds, make sure you are part of our TrailCap^TM program where we rebate trailing commissions.
3. Don't panic, time is on your side.
4. Sign up to our Investment Opportunity Newsletter and keep informed!

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