In recent weeks, global equity markets have experienced significant volatility, with prices falling by around 5% since mid-July.
This sudden drop, driven by various factors including unexpected rate changes by the Bank of Japan and softer-than-expected U.S. labour market data, has undoubtedly caused concern among investors.
In times like these, it’s easy to lose sight of your long-term investment strategy and make impulsive decisions that could ultimately hurt your financial future.
In this article, we look at how you can stay the course for long-term success, and some essential considerations to prevent impulsive reactions or decisions in your investments.
Stay Grounded in Your Investment Plan
When markets take a downturn, the instinctive reaction might be to panic, pull out and seek the safety of lower-risk options like term deposits.
However, it’s crucial to remember that investing is a long-term game.
Economic bumps and market corrections are a natural part of the investment landscape, and history has shown that markets generally recover and continue to grow over time. The key is to stay grounded in a strategy that aligns with your goals, risk tolerance, and time horizon.
Looking back at past crises, whether it was the Great Depression or the Global Financial Crisis (GFC), markets have always rebounded and rewarded those who remained patient and committed to their investment plans.
It’s these periods of volatility that often provide the best opportunities for long-term growth, provided we can exercise restraint, remain resilient, and have an expert team on our side to provide balanced, considered advice.
Term Deposits – A Double-Edged Sword
With term deposits currently offering attractive returns, you might be tempted to switch out of your investments. While this might seem like a safe bet in the short term, it’s important to consider the potential long-term impact.
Term deposit rates can fluctuate, and moving your money during a market dip may cause you to miss out on the subsequent recovery.
Before making any changes to your portfolio, take the time to understand your reasons for wanting to switch.
Are you reacting out of fear of further losses, or is this decision truly aligned with your financial goals? Consulting with your AdviceFirst adviser can help you understand and assess the risks and make an informed decision.
Why We Fear Losses More Than We Value Gains
One of the biggest challenges in investing is overcoming the natural human tendency to focus on losses rather than gains.
Loss Aversion is the idea that the pain of losing money is psychologically twice as powerful as the pleasure of gaining it. This can lead to overly conservative investment decisions that might not be in your best interest in the long run.
It’s important to view your investments in the context of their overall performance over time, rather than reacting to short-term market fluctuations. Keeping a clear perspective can help you stay on course and avoid making hasty decisions.
Don’t Let Doom & Gloom Cloud Your Judgment
In today’s 24/7 news cycle, negative headlines and financial crises tend to dominate the narrative. It’s easy to get caught up in the doom and gloom, but it’s important to remember that the media often focuses on short-term events rather than the bigger picture.
Making investment decisions based on sensationalised news can lead to regret later on down the line.
Despite this, there may still be valid reasons for making changes to your portfolio. Perhaps your investment time frame has shortened, your personal circumstances have changed, or your values towards what you invest in have shifted.
In such cases, it’s wise to review your strategy and consult with your Wealth adviser to ensure your investments are still aligned with your goals.
The Three Ts: Take Time, Think, and Talk to Your Adviser
When navigating uncertain financial times, it’s essential to remember the Three Ts:
- Take Time
- Think
- Talk to Your Adviser
Taking the time to reflect on your financial goals, thinking through the potential long-term implications of any changes, and consulting with your AdviceFirst adviser can help you stay on track and make informed decisions that continue to align with your long-term goals.
At AdviceFirst, we’re here to help you assess your options and build a strategy that’s right for you. If you’re considering making changes to your portfolio, don’t hesitate to reach out. We’re just a phone call away.
To discover how you can achieve a better financial future through smart investing, book a financial review with an AdviceFirst Wealth Adviser today.
Contact the AdviceFirst team on 0800 438 238 or email us at letstalk@advicefirst.co.nz.
Disclaimer: This blog is for informational purposes only and does not constitute individual financial advice.
