Staying calm during a volatile market

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Welcome to the New Year, we look forward to guiding you through the investment market in 2016.

2015 in review

At home the broader Australian market (S&P ASX300) finished just 2.8% up for the calender year, trading between 5982 in late April to 4918 in late September. All major commodities continued to fall throughout the year, coinciding with a collapse in Australian resource investment. Our cash rate remained steady at an historical low of just 2% for the last seven months of 2015.

Global influences played a major role in market volatility with the Greek crisis, terror attacks in Europe, the Syrian refugee crisis, the plunge in the Chinese share market and the US Federal Reserve tightening interest rates in December.

Looking ahead

It has been a challenging start to 2016, and when trying to get a feel for what it will look like for investments I am reminded of a quote from the economist John Kenneth Galbraith who said “the only function of economic forecasting is to make astrology look respectable”. This year we are going to refrain from making market predictions. That said, we do expect that 2016 is likely to be another year where investors will experience volatility, the unexpected and possibly some market over-reactions.

What do experienced financial planners do in the current market?

We stick to our plan. History shows us that markets recover over time and continue to rise over the long term. We acknowledge that short term fluctuations in the market are not within our control and we don’t let our emotions guide our financial decisions. The only time we revise our financial plan is due to a change in personal circumstances.

We feel comfortable sitting tight because our portfolio is diversified and this minimises some of the downside risk. We have a broad diversification across both industry sectors and asset classes. For example, currently the share market is taking a hit but cash and fixed interest are positive, which helps to offset some of the losses.

We only read information and listen to views from trusted sources, we don’t buy into the hype.

We like to see it as the market being ‘on sale’ and a good time to top up some worthy investments. Generally speaking, it is a good time to keep going with regular investment deposits so the average cost of buying your shares comes down. We avoid selling when the market is low, this would be the worst decision we could make and is a version of trying to time the market.

It is natural instinct to want to sell, and sit on the sidelines until everything calms down, when things are uncertain. It is very normal to want to try and avoid the risk of further losses. The correct thing to do seems a little counter intuitive but it is important to stick to your plan, and this is where a financial planner can help guide you.

We consider it our job to help coach you through the emotional side of money so that you make the best decisions for building your wealth. Many shares are ‘on sale’, and we can help guide you to the right ones. Given that there are some shares that that you would want to avoid and others that represent a good buying opportunity.

If you would like to learn more about investing, or speak to someone you can trust about your portfolio please contact us to discuss further. We can assist with developing an investment strategy tailored to your situation, or with the review of your existing investment strategy.

 

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About the Author:

Inbam Devadason
Inbam is a Director at Harvest Financial Group, and has been in the financial services industry for twenty four years. He is a qualified Actuary and Financial Planner who specialises in investment and superannuation. During the course of his career, Inbam has advised individual clients, superannuation trustees, corporate executives and company boards. In his spare time Inbam likes to give back to the community by volunteering his financial expertise to charities and non profit organisations. And he certainly keeps busy with his four children aged nine, seven, four and three.