We understand it will happen, but it’s unpleasant when it does. So, here’s what to do when your account balance goes the wrong way.
Volatility
The securities markets are often associated with big swings in prices. For example, when the stock market rises and falls more than one per cent over a sustained period, it is called a “volatile” market. See Nuts and Bolts: What is Volatility.
Reasons behind volatility will vary, and seeing headlines detailing consecutive down days in markets and then seeing the flow-on effect on your investment portfolio tends to induce concern.
We invest knowing down days will occur, and it’s how we react to them that will determine your long-term investment success. Here’s how you and InvestSMART help to manage volatile times and keep your investments on track:
Diversification is the key to lowering volatility over time. InvestSMART rebalances your portfolio from time to time, ensuring your portfolio maintains a blend of assets in line with the mandate of each portfolio. In short, we make sure a balanced portfolio remains balanced. It gives you confidence your portfolio blend and risk is in line with your expectations.
Make sure your investment portfolio is in line with your investment time horizon. The length of the timeframe directly correlates to the breakdown of growth and defensive assets each portfolio invests in. The longer the timeframe, the higher the growth assets and the greater the volatility. That timeframe allows for market downturns and provides time to recover. InvestSMART makes this easy for investors by clearly indicating the recommended timeframe for each portfolio.
What you can do to help. Focus on your timeframe. You know downturns happen. It’s par for the course when it comes to investing. Stick to your timeframe, continue your regular contributions and add more funds if you can.
I’d recommend this excellent piece by my colleague John Addis on How to Worry Better for further reading.
Finally, we’re here to help. Use the chat function, email or call on 1300 880 160. We cannot provide personal/specific advice, but we can talk about investing generally and account management.