Those who felt most nervous would have been those without any planning or investment goals – like people who recently bought shares because the media said it was a good time.
So over the next two weeks I’ll discuss key areas to focus on when investing; these are areas that you can control and committing to them offers the best chance of investment success.
Goals and a Plan: Having a goal (or goals) is the first priority and it’s something that will be matched with a plan.
Achieving the goal shouldn’t be dependent on overly ambitious returns or impractical savings, and any plan will identify any potential shortfalls in attaining the goal.
The plan should be personal so it endures through varying market conditions – good and bad.
One of the biggest risks to those without planning is “buy high, sell low” behaviour.
Analysis of the two previous bull and bear markets by Morningstar shows huge amounts of cash flowing into equity funds as markets near peak and then fall.
In contrast, Morningstar found comparatively minor amounts of cash flowing into equity funds as markets bottomed and began to rise – both indicators of unprepared investors buying high and selling low. We can help, if you’re looking for a Canberra financial advisor, contact us.
Diversification: Investing without diversification is little better than gambling because it exposes too much capital to a single asset class, company, industry or country.
Diversification cannot protect against loss, but does help to protect from unnecessarily large losses.
Investors in individual companies are sweating on profit reports, commodity swings, poor management and business failures.
Take the recent failure of Gunns; while the ASX All Ordinaries is up over 20% since the beginning of last year, Gunns shareholders saw their investment wiped out.
The impact of company failure isn’t felt when an investor is diversified and the combination of their diversified share funds may hold nearly 5000 individual companies in Australia and around the world.
No plan and little diversification, easy to understand why some investors are nervous.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543, www.mfg.com.au This information is general in nature and readers should seek professional advice specific to their circumstances. Need help with your financial your financial future, we think we’re one of the top financial advisors in Australia.
