What a volatile investing market means for you

It’s no secret that the global economy is experiencing challenges we’ve not seen for several years. Low unemployment and high consumer spending is driving inflation higher and higher, and investment markets are experiencing volatility. It’s no surprise that investors are concerned over what’s next. If you’re concerned about what a volatile market means for you, your investments and your future, here’s what you need to know.

Avoid panic selling

The first and most important thing to remember when share prices fall is this: price fluctuations are normal. Property values fluctuate regularly, but we don’t pay much attention to them unless we’re planning to buy or sell. The liquid nature of holding shares, however, means many investors rush to sell at the first sign of a downturn.

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. Research from US-based Bank of America shows that missing the 10 best days in the stock market can significantly worsen your investment returns¹. Selling after the market falls can mean that you realise the losses but also run the risk of missing a subsequent recovery, compounding the damage.

Review your investment strategy

Volatile markets are an important reminder to check in with your investment strategy. Advice on managing risk is easy to ignore when values are climbing week after week. Sometimes it takes disaster to strike for investors to start taking 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 countries broadens your exposure and ensures your portfolio is not over-concentrated in one category or economy. 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 style that involves buying shares across a range of price points to average out the cost per unit. When you continue investing during a bear market, your portfolio could benefit from acquiring more shares at a lower cost. The more shares you have, the more you can benefit when the market improves again.

As an example, dollar cost averaging with a $500 monthly investment. Investing $500 every single month no matter the market environment means that when a share is $10 per unit, you’re getting 50 units, and when that same share is $5 per unit, you’re getting 100 units. This allows you to offset the higher value buys with more units when you execute lower value buys.

Keep fees low

Brokerage fees for trading shares can add up over time, especially when you’re selling shares during a downturn and buying back in when things improve. Plus, ongoing management fees in managed funds can eat away at your returns. Check in with the fees you’re paying. Exploring lower cost managed funds could help you keep fees in check.

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 allows you to ride out normal market fluctuations, and even benefit from them.

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.

You can identify your investing style with Bendigo Bank’s investment style selector.

Superannuation and tax incentives

Aside from investable cash from your after-tax income, don’t discredit the value of your super fund. Your super fund is investing your retirement savings behind the scenes on your behalf. While a market downturn may cause your super balance to drop, it can actually be a great opportunity to boost your retirement savings and enjoy tax benefit.

Australians are entitled to make concessional contributions (a cap applies) into super and they may offer tax benefits. As an example, salary sacrifice into super means you can save tax and it may also allow your contributions to go further by buying more units at a lower price during a market downturn. This calculator can help you establish how salary sacrifice into super could benefit you.

Plus as of 1 July 2022, employers must now increase the superannuation guarantee to 10.5% of your salary into your super fund on your behalf. This means more money into your super, and more units that can grow in value over the long term.

Bendigo Bank’s Wealth Concierge is available for support on managing investment risk during a downturn. If you have any questions about market volatility, email WealthConcierge@bendigoadelaide.com.au or complete an enquiry form and we will get in touch..

Things you should know:

¹ Source: Bank of America research quoted in CNBC “This chart shows why investors should never try to time the market” 24.03.2021

Provided by Sandhurst Trustees Limited ABN 16 004 030 737 AFSL 237906, a subsidiary of the Bendigo and Adelaide Bank Limited. Information contains general advice only and does not consider your objectives, financial situation and needs. You should consider your situation before making an investment decision.