What a volatile investing market means for you

It’s no secret that the global economy has experienced challenges in recent years that we’ve not seen for some time. It is a timely reminder for investors that markets experience highs and lows and that 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.

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, however, means many investors first impulse is to consider selling if there looks to be a prolonged or deep downturn in the market.

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 a US-based Financial Services Company Wells Fargo 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 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. 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.

Review your fees

Brokerage incurred by trading shares can add up over time, especially if you’re selling shares during a downturn and then buying back in when things improve. Ongoing management fees charged by fund managers must also be considered as they can impact your investment returns. Check in on 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 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.

Things you should know:

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

¹ Wells Fargo research quoted in CNBC (2024) “Bailing on the stock market during volatility is a ‘loser’s game”. The information in this article is provided by Sandhurst Trustees Limited ABN 16 004 030 737 AFSL 237906, a subsidiary of the Bendigo and Adelaide Bank Limited. It contains general advice only and does not take into account your personal objectives, situation or needs. You should consider the appropriateness of any advice given before making an investment decision.