If you’re worried about the current investment horizon it’s safe to say you’re not the only one.
Fear is gripping world markets and Australia is not immune to any sell off, but that doesn’t mean you should sell in a panic.
Emotions dictate markets in good times and in bad.
Investors are excited about investing when they see prices have risen, while they are worried about investing after prices have fallen.
These are the exact reasons why investors buy in when markets are high and sell out when markets are low.
It’s essentially herd behaviour – buying and selling in response to the actions of others.
Anyone who has been investing for any length of time would understand the potential volatility.
In the last decade we’ve seen markets affected by the tech bubble, 9/11, the 2004 tsunami, the GFC and more recently, the Japanese earthquake and tsunami.
Eventually, the market prices in the news, finds a bottom and moves on.
In the midst of a panic, well managed companies will continue to make profits and growth stories will emerge from economies around the world.
In respect to your own portfolio, if you’re not convinced about the futility of moving in and out of the market, these figures from financial research firm DALBAR illustrate how investors’ actions in uncertain times cost them dearly.
In the 20 years to December 2010 the US S&P 500 returned an annualised 9.14%, while the average equity fund investor returned a paltry 3.83%.
A 9.14% annual return shows the market can comfortably do the work for the investor; however the investor’s behaviour (often second guessing market movements) cheats them out of the returns available.
The important point is not to panic and remain rational.
There will always be market scares and bad economic news – this is an inherent part of investing, but good companies will continue to make money and markets will inevitably recover.
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.
