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David Batchelor
David Batchelor

Financial Adviser

Melbourne

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Choosing to be a rational investor in times of market volatility

Whenever market volatility increases, concerned investors naturally want to know if they should do anything different to protect and maximise their wealth. As an investor myself, I understand this. We all have a need to be reassured during periods of uncertainty, especially when our hard-earned money is involved. At these times, it’s difficult to remember that it’s normal for investment returns to vary greatly from year to year and still grow sufficiently over the long-term to build significant wealth.

This chart show that December 2018 saw one of the great falls in S&P 500 shares while January saw almost equal gains. Both are historic extremes, so what’s an investor to do?

Source: Payden & Rygel Investment Management

It’s easy to get caught up in the headlines and hype, but as experienced investment advisers who have managed our clients’ wealth for over 16 years, through the GFC and beyond, we know well-managed and diversified investment portfolios provide protection in a crisis. Volatile markets never stopped anyone making long-term returns to fund their retirement plans, but not investing (and not doing it well) certainly does limit wealth. Markets may not be rational but as investors we can choose to be. The key is to seek good advice from an adviser you trust, set up the right investment strategy and keep a cool head.

Here are three important things to keep in mind to reap the long-term benefits of sound, well-managed investments:

1. Remember that market volatility itself is NOT a bad thing

Market corrections can feel concerning, but they are a normal, healthy part of investing. While they may make investors nervous in the short term, they’re better for long-term market structure as they lower the risk of larger flare-ups. It’s also important to remember that the volatility seen in share markets is the price we pay for higher returns than most other asset classes over the long term.

Tip: Ignore the share market’s intra-day moves and up-to-the-minute investment news. They are irrelevant and lead to emotional reactions rather than considered decisions.

2. Remember why you started investing in the first place

Whether it’s to create your ideal retirement lifestyle, or to diversify your investment portfolio, your goals are not volatile like the markets. By focusing on your goals, you will be in a better position to drown out market noise.

Tip: Revisit your investment strategy to make sure it’s on track to achieving your goals. A financial adviser worth your time and money will help you do this and help you adapt to shifts in the market when required.

3. Remember to diversify your portfolio

A portfolio of diverse assets that perform differently in various market conditions is key to investment success.

Tip: Diversifying your timing is just as important as diversifying your asset classes. By making investments over a period of time, you reduce the risk of investing all your money at the top of a bull cycle.


How we do it

At FMD, our Investment Committee (IC) constantly reassesses portfolio allocations and our Active Management Service (AMS) enables us to move quickly to rebalance portfolios in response to market fluctuations, keeping our clients informed every step of the way.

Through our robust approach of active portfolio management and monitoring, we’ve successfully built long-term returns and wealth for our clients. But don’t take our word for it, see what they say.


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