{"id":1182,"date":"2022-04-21T04:14:20","date_gmt":"2022-04-21T04:14:20","guid":{"rendered":"http:\/\/actinvest.com.au\/?p=1182"},"modified":"2022-04-21T04:14:20","modified_gmt":"2022-04-21T04:14:20","slug":"mistakes-to-avoid-when-markets-are-turbulent","status":"publish","type":"post","link":"https:\/\/actinvest.com.au\/index.php\/mistakes-to-avoid-when-markets-are-turbulent\/","title":{"rendered":"Mistakes to avoid when markets are turbulent"},"content":{"rendered":"

Decisions made in response to short-term events will invariably have negative long-term consequences, so avoid these three common mistakes if you can<\/p>\n

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Another day, another big fall on global stock markets.<\/p>\n

That was the story late last week as Australians woke to the news that a surge in U.S. annual inflation data to a 40-year high of 7.5 per cent had sent markets into the red.<\/p>\n

The U.S. market ended Thursday\u2019s trading session down almost 2 per cent, while the Australian stock market followed that lead on Friday, finishing around 1 per cent lower.<\/p>\n

It\u2019s understandable that heightened stock market volatility can be very unsettling for investors.<\/p>\n

And there\u2019s a reasonable chance that markets will remain volatile over the medium term as central banks around the world move to lift interest rates to counter rising inflation.<\/p>\n

Higher interest rates reduce both spending and borrowing power, which impact consumers and companies, and tend to soften flows into riskier investment segments.<\/p>\n

Three mistakes to avoid<\/p>\n

The first thing is not to be spooked into making rash investment decisions on the basis of day-to-day movements in markets.<\/p>\n

Decisions made in response to short-term events will invariably have negative long-term consequences.<\/p>\n

1. Failing to have a plan<\/p>\n

Investing without a plan is an error that invites other errors, such as chasing performance, market-timing, or reacting to market \u201cnoise.\u201d Such temptations multiply during downturns, as investors looking to protect their portfolios seek quick fixes.<\/p>\n

2. Fixating on losses<\/p>\n

Market downturns are normal, and most investors will endure many of them. Unless you sell, the number of shares you own won\u2019t fall during a downturn. In fact, the number will grow if you reinvest your funds\u2019 income and capital gains distributions. And any market recovery should revive your portfolio too.<\/p>\n

3. Overreacting or missing an opportunity<\/p>\n

In times of falling asset prices, some investors overreact by selling riskier assets and moving to government securities or cash equivalents. But it\u2019s a mistake to sell risky assets amid market volatility in the belief that you\u2019ll know when to move your money back to those assets.<\/p>\n

While past returns are not an indicator of future performance, they do give a fairly good indication of the differences in returns between different types of assets.<\/p>\n

Shares are renowned for being more volatile than other asset classes, however they have typically delivered the best returns over longer-term periods.<\/p>\n

Over the last decade, for example, the U.S. stock market has delivered a total return of more than 500 per cent. The Australian stock market has returned more than 180 per cent.<\/p>\n

By contrast, record low interest rates have seen the annualised return from cash sit at 1.9 per cent. That\u2019s translated into a total cash return over the last 10 years of 21 per cent (including compound interest returns).<\/p>\n

Cash has definitely not been the best place to be, especially for retirees relying on income generation.<\/p>\n

Consider hiring a financial coach<\/p>\n

If you\u2019re really not sure about what to do now, or your overall financial direction, you could consider consulting a financial adviser.<\/p>\n

You can liken a financial adviser to a personal financial coach, who can help you to make informed decisions throughout your investment journey.<\/p>\n

The benefits of engaging with an experienced financial adviser are many.<\/p>\n

Importantly, an adviser can provide you with a roadmap to help you reach your long-term investment objectives.<\/p>\n

That roadmap should factor in your overall appetite for taking on investment risk, including times of greater market volatility.<\/p>\n

Do your homework<\/p>\n

Financial advisers don\u2019t just pick shares or recommend investments for you. They carefully analyse your personal circumstances and assess the market environment to develop a personal investment strategy.<\/p>\n

Before you meet with a financial adviser for the first time it\u2019s useful to have answers to the following questions:<\/p>\n