Making the most of a market downturn

In recent years, market volatility has once again tested the nerves of investors. From the post COVID recovery to ongoing geopolitical tensions, persistent inflation and rising interest rates, many are questioning how best to position their investments for the future. For retirees, the challenge is even greater, finding reliable income while preserving capital isn’t easy in this kind of environment. And with super balances under pressure and living costs on the rise, many are starting to question whether their money will go the distance.

It’s no secret that investing successfully requires patience, clear goals, a long-term view and sound financial advice; however in times of uncertainty it can be easy to forget these principles.

Here are some other key investment concepts to keep front of mind.

1. Remember your goals and stick to your strategy.

Right now it’s easy to understand some people being shaken enough by volatile market swings to consider abandoning carefully planned financial goals.

We’re only human after all. When markets are trending up, people’s investment horizons are naturally long term. When the markets are volatile, short-term thinking takes over. But that’s rarely the best option to take. Keeping your financial goals at the front of your mind and sticking to your strategy is the key.

It’s important to focus on the longer term picture, remembering that asset classes such as shares and property, while volatile in nature, make the best investments to achieve long-term growth and income security. They can also act as a hedge against inflation.

2. Time invested in the market is what counts, not timing the market.

If you withdraw your funds from the market, you may end up with a capital loss. In addition, by being out of the market you miss the opportunity to benefit from any upswing.

No one knows when bounces will happen. History has shown that it is the patient investor who benefits from subsequent share value increases.

3. Markets move in cycles.

If you have invested to achieve higher returns over the long term, it’s normal to expect periods of negative returns along the way.

For example, over the past few decades, major indices like the ASX 200 have experienced occasional dips, but the overall trajectory has been upward. Staying invested through the cycle, rather than trying to predict it, gives your portfolio the best chance to recover and grow over time.

So, the first key investment truth to remember is that historically markets bounce back and go on to achieve new highs.

4. Double digit returns are an aberration, not the norm.

While we’ve seen some impressive market surges in recent years, those periods are the exception, not the rule. Over the long term, average annual returns across diversified asset classes tend to fall within single digit territory. The investment data you need to look at is based on the long term, not the short term. Superannuation is, after all, a long-term investment. 

5. Embrace an investment bargain.

Volatile markets always bring intelligent buying opportunities. And who doesn’t love a bargain?

However, prior to jumping in with all your cash, do your research first.

Remember the old saying … ‘high risk, high volatility, high return’. Always invest within your comfortable zone of risk. A lower return is usually the safer option. It just depends on how highly you value good sleep.

Source: Financial Writers Australia