Don't let a down market get you down

10 September 2019 | Markets and economy

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When you look back at a big stock-market downturn, it can be hard to remember why everyone was convinced that the end had finally come. With the benefit of hindsight, it becomes clear that what appeared to be catastrophe was simply a large dip in a long-term upward path.

In the moment, the fear that the market will never recover holds such a strong grip that it can cause you to overreact and damage your long-term returns. The share market has been bouncing around a bit lately, so this may be a smart time to prepare yourself with a few ideas on how to stay the course through the next share slide, no matter when it comes.

The first and most important step, as always, is to design a diversified, low-cost portfolio that aligns with your goals, timeframe and risk tolerance. Then, sticking with your plan regardless of financial-market weather gives you the best chance for investment success.

Here are three ideas that may strengthen your resolve the next time share markets grow stormy:

Ignore the daily ups and downs

No one likes to see the value of their super or other investment fall. For that reason, some experts advise that you avoid checking your portfolio's value frequently because day-to-day changes are meaningless, whether they are up or down.

If you do check, remember that those losses are only on paper. They become real only if you overreact and sell shares when prices are low. But that's behaving like a driver who swerves to avoid hitting a piece of rubbish only to plow into a tree. It's an overcorrection.

Over the long run, staying the course leads to significant gains. Vanguard research shows that over the last 30 years ending 30 June 2019, $10,000 would have grown to $146,337, $105,787 and $80,382 if invested in Australian Shares, Australian Bonds and International Shares respectively.

Consider saving more

At Vanguard, we believe investors should control what they can. You can't control financial markets, but you can control costs and how much you invest. If you're worried about predictions that financial-market returns will be below average in the next several years, you may want to set aside more. You may want to start by analysing whether you should salary sacrifice additional funds into your super. The more you save, the bigger your cushion against a fall.

Think about hiring an adviser

If you've ever hired a tradie to complete a home repair, or a coach to get you across the line in a marathon, you understand the value of professional help. A financial adviser can help you identify goals, create a plan to achieve them and be available to keep you on track when markets go haywire.

 

Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.
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Robin Bowerman, Head of Corporate Affairs at Vanguard Australia, shares investment and personal finance insights gained from over two decades in the finance industry as writer, commentator and editor.

Robin Bowerman