Forecasting your emotions

January 28, 2015
Jason Sibio

None of us know where markets are heading but you can control your response to volatility.

Whether it's sharemarket dips, swings in the property market or shifts in managed fund values, successful investors know that asset market volatility is a natural part of long term investing.

Nonetheless, dealing with market volatility is not always easy.

Asset markets are, by nature, unpredictable
Investment markets are driven by a vast array of forces, which explains why no one - not even the experts, can accurately predict market movements all the time. That's why the key to managing volatility doesn't lie in second-guessing where markets are heading but rather in knowing how you will react to those movements. As the experts put it, you can't predict but you can prepare.

Knee jerk reactions can be costly
It can be enormously tempting to respond to market volatility with knee jerk reactions. In practical terms that can mean selling when prices take a dip, only to buy back in when prices are high. It's a strategy that can seriously stifle wealth creation as it can lock in losses especially as markets generally return to their previous highs over time. Not surprisingly, this approach is termed 'reactionary investing'.

Focus on what you can control
Taking command of asset market volatility involves a very different, and remarkably simple, strategy - one that centres on focusing on what you can control and not what you can't. The beauty of this strategy is that it often involves taking no action at all. As a guide, if you have selected an investment portfolio based on your long term needs, there is no reason to switch out of these assets because of short term market shifts. In fact, a drop in asset values can offer good buying opportunities, as it is a chance to pick up quality investments at reduced prices.

As advisers we act as a coach
Periods of market volatility can also be a time when quality financial advice is an excellent investment. Many of our clients find it is very reassuring to receive a recommendation to simply 'do nothing' when asset markets are experiencing volatile conditions. To check if you are on track for your wealth creation goals, or if you are concerned about market volatility, please don't hesitate to give me a call on 03 9432 6070.

Jason Sibio - BBus ADFP - Financial Adviser
Mortgage Choice Fianancial Planning
Authorised Rep No 449850

Posted in: Financial planning

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