What a volatile investing market means for you

When investing, understanding that markets experience highs and lows in short time periods is normal. Volatility is brought about by differing factors, often global events or changes in government policy can initiate changes to market sentiment and prices. There are some good practices to put in place regardless of the state of the markets. If you’re wondering about what a volatile market means for you, your investments and your future, here’s what you need to know.

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Understanding market volatility

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To understand market volatility, let's first discuss the concept of investing. Different to a savings account at a bank, investing involves the purchase of assets with the intention that their value increases over time. Triggers such as market changes, economic factors like COVID and the GFC and inflation trends can all cause fluctuations in your investments. However, it's important to remember that while the fluctuations affect the value of your investment, periods of volatility are a normal part of investment. That over time stability will return within the market.

There's many ways to manage the up and down activity of your investments. But to start, here are four key things to remember when you're concerned about market volatility and your investments. One, don't panic sell. It's not unusual to be concerned by periods of market instability. It can be scary to see large or even small losses on paper, but it's helpful to remember that market volatility is a typical part of investing. And the companies you invest in will respond to a crisis. Two, remember, your long-term plan. Is your investing timeframe and goal still the same? A well-balanced, diversified portfolio will be constructed with potential rises and falls in the market in mind. However, if you need access to your funds soon, investing in volatile assets might not be your best option. But for medium to long-term goals, volatility is usually part of the journey to significant growth.

Three, diversify. Having all your eggs in one basket may put you at risk when the market dips, so it's important to consider diversifying your investments. Four, consider market volatility and opportunity. Market drops can also be capitalized on. Buying stocks when they are low can be a valuable investment opportunity.

If you'd like more information, our Wealth Concierge team can give you complimentary general advice or refer you to a financial planner for personal advice. To get in touch, make an online inquiry through our website or drop in and see us at your local Bendigo Bank branch.

Close transcript

Close transcript

To understand market volatility, let's first discuss the concept of investing. Different to a savings account at a bank, investing involves the purchase of assets with the intention that their value increases over time. Triggers such as market changes, economic factors like COVID and the GFC and inflation trends can all cause fluctuations in your investments. However, it's important to remember that while the fluctuations affect the value of your investment, periods of volatility are a normal part of investment. That over time stability will return within the market.

There's many ways to manage the up and down activity of your investments. But to start, here are four key things to remember when you're concerned about market volatility and your investments. One, don't panic sell. It's not unusual to be concerned by periods of market instability. It can be scary to see large or even small losses on paper, but it's helpful to remember that market volatility is a typical part of investing. And the companies you invest in will respond to a crisis. Two, remember, your long-term plan. Is your investing timeframe and goal still the same? A well-balanced, diversified portfolio will be constructed with potential rises and falls in the market in mind. However, if you need access to your funds soon, investing in volatile assets might not be your best option. But for medium to long-term goals, volatility is usually part of the journey to significant growth.

Three, diversify. Having all your eggs in one basket may put you at risk when the market dips, so it's important to consider diversifying your investments. Four, consider market volatility and opportunity. Market drops can also be capitalized on. Buying stocks when they are low can be a valuable investment opportunity.

If you'd like more information, our Wealth Concierge team can give you complimentary general advice or refer you to a financial planner for personal advice. To get in touch, make an online inquiry through our website or drop in and see us at your local Bendigo Bank branch.

Close transcript

Avoid panic selling

It is important to remember price fluctuations are a normal part of investing. Property values may fluctuate regularly but often don’t impact us unless we’re planning to buy or sell. The liquid nature of holding shares means many investors first impulse is to consider selling if there looks to be a prolonged or deep downturn in the market to preserve capital, as they feel that is the safest approach.

You’ve likely heard the adage ‘time in the market beats timing the market.’ This is worth remembering during market downturns. Holding your shares through downturns generally results in better long-term outcomes than those who sell when things turn sour and buy back in when things pick up again. Markets may have a tendency to over-react to global events. It can take time for negative sentiment to subside. When it does, being on the right side of an upswing is key.

Selling after the market falls can also mean that you realise the losses but also run the risk of missing a subsequent recovery.

Review your investment strategy

Volatile markets can be an important reminder to check in on your investment strategy. Advice on managing risk is easy to ignore when values are climbing week after week. Sometimes, it takes a significant market event (e.g. Covid-19), prolonged volatility or sharp falls for investors to then take note of their risk exposure.

Diversification is key

Diversification means not putting all your eggs in one basket. Investing across different industries, asset classes and international markets broadens your exposure. The aim is to ensure your portfolio is not over-concentrated in one category or economy thereby spreading your risk. Investing in industries that are not correlated might see one part of a portfolio counter falls in other areas. Investment options like Exchange-Traded Funds (ETFs) or Managed Funds can offer access to a diverse range of securities within the one investment.

Dollar cost average

Dollar cost averaging is an investment strategy that involves consistently investing a fixed amount of money at regular intervals, regardless of investment prices moving up or down. By spreading investments over time, you maximise your chances of paying a lower average cost per unit over the long-term. When you continue investing during a declining market, your portfolio could benefit from acquiring more shares/units at a lower cost. The more shares/units you have, the more you can benefit when the market improves again.

Think long term

When you’re investing for the long term, short-term market fluctuations are part of the journey. A buy-and-hold approach will cut out the impact of short-term fluctuations and may see you benefit in the long term when markets recover.

With a long-term approach to investing, it’s important to consider your own risk appetite. Fear during market downturns can signal that your investment strategy isn’t aligned to your personal risk tolerance. Make sure you’re investing with a strategy that is reasonable for your own peace of mind.

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