Dr Shane Oliver, Chief Economist, outlines 6 recommendations to help investors remain focused on the long term.
Volatility and risk events will feature in global share markets this year, but these factors shouldn’t derail investors’ longer-term outlooks, Shane Oliver, AMP Capital’s Chief Economist, says.
Not just global but domestic risk events could also spark share market sell offs in the range of the close to 10 per cent sell off in February, Oliver notes.
The ongoing slowdown in house prices in Sydney and Melbourne and the possible impact this could have on banks, spending and the broader economy could be one of the so called “risk events” investors are likely to have on their radars, Oliver comments.
Rising inflation and bond yields causing volatility; “trade wars” resulting from new tariffs on imports into the US; ongoing political issues relating to the US President Donald Trump’s administration – all of these risks will be on the minds of investors this year.
However, investors should remember to not lose sign of the longer term picture; that is, while there will be more volatility this year, the trends in share markets continued to be underpinned by global growth.
Oliver highlights investors wanting to remain focused on the long-term should be reminding themselves of the following points:
- First, periodic sharp setbacks in share markets are healthy and normal. Shares literally climb a wall of worry over many years with numerous periodic setbacks, but with the long-term trend providing higher returns than other more stable assets.
- Second, selling shares or switching to a more conservative investment strategy or superannuation option after a major fall just locks in a loss. The best way to guard against selling on the basis of emotion after a sharp fall is to adopt a well thought out, long-term investment strategy and stick to it.
- Third, when shares and growth assets fall they are cheaper and offer higher long-term return prospects. The key is to look for opportunities that pullbacks provide.
- Fourth, while shares may have fallen in value the dividends from the market haven’t. So the income flow you are receiving from a well-diversified portfolio of shares remains attractive.
- Fifth, shares often bottom at the point of maximum bearishness. And investor confidence does appear to be getting very negative which is a good sign from a contrarian perspective.
- Finally, turn down the noise. In periods of market turmoil, the flow of negative news reaches fever pitch. Which makes it very hard to stick to your well-considered long-term strategy let alone see the opportunities. So best to turn down the noise.
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