Mistakes to Avoid When Markets are Turbulent

22 Nov

This content was sourced from Vanguard - Mistakes to avoid when markets are turbulent | Vanguard Australia FAS

These three common mistakes are easy to avoid. Making them could be costly.

Sharp downturns on global financial markets are always unsettling.

Over recent days, largely in response to growing fears that the United States is heading into a recession, share markets fell heavily before rebounding.

Share markets may remain volatile over the short term. But a key lesson is that it never makes good investment sense to be swayed by the day-to-day movements of share markets into making knee-jerk investment decisions.

Rash decisions made in response to short-term events will invariably have negative long-term consequences.

What's most important is to have a long-term investment strategy and diversified asset allocation plan, and not to deviate from that plan, even when markets do fall sharply.

Three mistakes to avoid

1. Failing to have a plan

Investing without a plan is an error that invites other errors, such as chasing performance, market-timing, or reacting to market “noise.” Such temptations multiply during downturns, as investors looking to protect their portfolios seek quick fixes.

2. Fixating on losses

Market downturns are normal, and most investors will endure many of them. Unless you sell, the number of shares you own won’t fall during a downturn. In fact, the number will grow if you reinvest your funds’ income and capital gains distributions. And any market recovery should revive your portfolio too.

3. Overreacting or missing an opportunity

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

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.

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

Share markets invariably recover their lost ground over time. So the best strategy is always to stay on your course, irrespective of sudden market jolts.

What's most important is to have a long-term investment strategy and diversified asset allocation plan, and to not to deviate from that plan, even when markets do fall sharply.

If you’re really not sure about what to do now, or your overall financial direction, you could consider consulting a financial adviser.

This content was sourced from Vanguard in November 2024.

Important information and general advice warning

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer and the Operator of Vanguard Personal Investor. We have not taken your objectives, financial situation or needs into account when preparing this article so it may not be applicable to the particular situation you are considering. You should consider your objectives, financial situation or needs, and the disclosure documents for any financial product we make available before making any investment decision. Before you make any financial decision regarding Vanguard products, you should seek professional advice from a suitably qualified adviser. A copy of the Target Market Determinations (TMD) for Vanguard's financial products can be obtained at vanguard.com.au free of charge and include a description of who the financial product is appropriate for. You should refer to the TMD before making any investment decisions. You can access our IDPS Guide, PDSs, Prospectus and TMDs at vanguard.com.au or by calling 1300 655 101. Past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. This article was prepared in good faith and we accept no liability for any errors or omissions.

Unified Wealth Disclosure - The information in this website and the links has been prepared for general information purposes only and does not take into account your personal objectives, financial situation or needs. It is not intended to provide commercial, financial, investment, accounting, tax or legal advice. You should, before you make any decision regarding any information, strategies, or products mentioned in this website, consult a professional financial advisor to consider whether it is suitable and appropriate for you and your personal needs and circumstances. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product, together with the Target Market Determination (TMD).

About Us

After working as an advisor for a decade, Joel founded Unified Wealth.

Unified Wealth specialises in helping clients who are facing life’s big decisions.

Whether you’re contemplating your first property, growing your family or starting your investment journey we can help you focus on the simple steps to help you make your goals reality.

Our priority is making sure you have all the right information available to make the best possible decisions for you and those you love.

Our company values are:

Unity - We are most effective when we work together as a team

Trust - We are trustworthy and act in your best interests

Transparency - We are honest and communicate openly

Education - We are committed to lifelong education

At Unified Wealth our team is highly experienced and provides goal-based advice and solutions for a range of advice strategies.

Joel Bullimore