Investing in uncertain times
Whether you’re an experienced investor or just starting to learn more, a downturn in the market can be stressful. The good news is that history has generally shown that these downturns come and go and markets generally rebound over time.
To be a savvy investor, you can watch the downturns and know that negative returns are normal every few years, but it’s important to focus on your long term objectives.
Here are some tips that might help you stay focused on your long-term objectives during a downturn.
Avoid making reactive decisions to short-term events
Markets tend to rise and fall, so, every few years, there will be a period of negative returns during a fall. If you react to a short-term downturn in the market by moving your money to another plan, you could risk losing the benefits later when the markets recover. Try to ignore short-term events in the market that impact your investment negatively.
Look at history for evidence of how markets have generally recovered
Events of the past few decades have had an enormous impact on financial markets including the sharemarket crash in 1987, the Gulf War, the Asian economic crisis and market collapse, terrorist attacks in the US, the sub-prime issue in 2008 and many more.
Markets suffered straight after these events as investors became nervous about the impact of each event, but history shows that markets recovered over time.
Focus on your long-term goals
Reacting to market events might not suit your long-term investment objectives which aim to build enough super to help you build your retirement savings.
To set long-term objectives:
- Calculate your investment horizon. For example if you’re 25 years of age and retire at 60 years of age, you will have about 35 years until you retire. This gives you a 35 year investment horizon.
- Assess the level of risk you are comfortable with when investing. Generally, the longer your investment horizon, the greater the risk you can take. Growth assets like Shares and Property are considered high risk investments as they can yield high returns but also suffer greater fluctuations in the market. On the other hand, assets such as Cash and Fixed Interest are considered low risk investments as the fluctuations are minimal but the expected returns are also lower.
- Choose an appropriate investment plan. Take your investment horizon and investment personality into account as you explore your investment options:
- Stick to your long-term objectives. Try to ignore the fluctuations in the market as fluctuations are a normal part of an investment cycle.
Get professional advice
If you're building a house, launching a business or making some important financial decisions, you would usually get advice to help achieve the best outcome. It's the same with your retirement savings. Rather than building your own nest egg, a qualified adviser can help you understand the best approach to help you get the best results.
Keep making contributions
Even during a downturn, it’s important to continue to build your retirement savings to help you stay on track with your long-term objectives. Investing during a downturn could mean that you invest when prices are low, so you’ll benefit when the prices rise later as a result of a rebounding market.
Past performance should not be relied on as an indication of future performance.
Thank you for printing this page. Remember to come back to gesb.wa.gov.au for the latest information as our content is updated regularly. This information is correct as at 28 January 2020.