Buying when you feel like selling
Why do analysts seem to rub their hands together when others have theirs over the "sell" button? Because history tells them recoveries happen and market fears are temporary.
As my colleague, John Addis from Intelligent Investor said in his early pandemic article, Buying in the face of fear:
"Having survived the '98 Asian crisis, the dotcom crash, the global financial crisis and all other crises in between, we've had enough bad experiences to (more or less) know what to do. An understated but key part of our service is to offer encouragement, a push even, to step off the cliff and buy when every part of your being is shouting at you that it's too early, too late, or too bloody stupid. It is at such times we earn our keep."
Putting this context of our long-term focused, diversified InvestSMART portfolios, our experience through the above mentioned "bad times" sees us build portfolios diversified across a range of asset classes. So when you hear about billions being wiped off the ASX 200, know that is just one component of your portfolio.
Experience also tells us that chopping and changing our portfolios doesn't position them better. Instead, it adds on expenses through transaction costs and taxes. We leave more capital to compound portfolio returns over time by not switching.
And, when it comes to stepping off the cliff, we encourage investors to add gradually to their portfolio if they can. Sure, the outlook will remain murky, and we have no idea when markets will start to increase again, but we know things will be clearer after markets have gone up. So, deploy cash gradually with the understanding that while you don't know when things will improve, know that eventually, they will.
I helped a friend start his investing journey by buying an ETF that tracks the ASX. I also showed him how to get an international ETF, so he's not just limited to the Australian market. Knowing of his love for buying bargains at Aldi and preparing him for the inevitable times his portfolio would be in the red, I asked him what he does when his favourite wine and cheese are on special. He replied, "I buy a little more".
Frequently Asked Questions about this Article…
Analysts often suggest buying during market downturns because history shows that recoveries happen and market fears are temporary. This strategy can lead to long-term gains as markets eventually rebound.
During market volatility, it's important to maintain a diversified portfolio across various asset classes. Avoid frequent changes to your portfolio, as this can incur additional transaction costs and taxes. Instead, consider gradually adding to your investments over time.
A diversified investment portfolio spreads risk across different asset classes, reducing the impact of any single market downturn. This approach helps in maintaining stability and compounding returns over the long term.
Selling investments during a market downturn is generally not recommended, as it can lock in losses. Instead, consider holding onto your investments or gradually adding to them, as markets tend to recover over time.
To start investing in the stock market, consider purchasing ETFs that track major indices like the ASX. This provides exposure to a broad range of stocks and can be a good entry point for new investors.
If your portfolio is in the red, remember that market downturns are temporary. Consider buying more of your investments at lower prices, similar to buying bargains, and hold on for the long-term recovery.
Investing internationally diversifies your portfolio beyond the local market, reducing risk and potentially increasing returns. It provides exposure to different economic conditions and growth opportunities.
Overcoming the fear of investing during uncertain times involves understanding that market recoveries are a historical norm. Gradually investing and maintaining a long-term perspective can help ease concerns and lead to potential gains.
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