The recent wave of market volatility proved an interesting study of how the media responds to market sell offs.
The reaction on the front pages of newspapers, websites and from anchors of news channels was to talk of a blood bath, something that couldn’t help but grab attention.
One news website had the story atop of its homepage for days; yet the regularly updated story disappeared when the Australian market finally ignored a large fall in the US and finished positive.
While the horror stories were leading, there was a contrast to be found in other sections of those newspapers and websites.
For anyone who didn’t faint at the headlines, the message coming from those who’d seen such volatility before was, “don’t panic.”
Crystallizing gains or losses after a sharp dive is the reason most investors don’t achieve the returns available to them.
Not that you’d know it, but in the 110 year period from 1900 to 2009 the Australian share market has returned 89 years of positive growth against 19 years of negative growth.
Across this time the average annual return was 13.59%, but you could easily assume the reverse was true.
Studies have shown investors feel a loss more significantly than they feel a gain of the same amount, so remaining calm while the focus ramps up on consecutive large daily falls isn’t easy.
The best way to avoid anxiety is to ensure your portfolio has been designed to match your financial objectives, which includes a safer component of cash and fixed interest securities.
At the same time, maintaining an adequate cash buffer allows peace of mind.
Should money be required at short notice, this means growth investments won’t be sold into a distressed market.
There’s no suggestion the wild ride is over, but if you plan to invest, you need to plan for the emotional journey investing can also take you on.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL / ACL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. If you want help with your financial future, we think we’re Australia’s best financial planner.
