Volatility in financial markets can stir unwelcome feelings among many investors - feelings of anxiety, fear and a sense of powerlessness. These are completely natural responses. Acting on these emotions, though, can end up doing us more harm than good.
Falling prices just mean investors are demanding an additional return for their exposure to riskier assets. And we know that prices can rise and fall depending on changes in sentiment triggered by short-term news developments. As to what happens next in these cases, no-one ever knows for sure. This is the nature of uncertainty.
Markets are behaving as one would expect them to in a period of heightened uncertainty. An apparent deterioration in the global growth outlook (based on the Chinese economy and expectation that the US Federal Reserve will start tightening monetary policy) has lowered aggregate expectations of future returns and reduced appetite for riskier assets.
News moves quickly and unpredictably - that is the nature of news - so re-positioning a strategy in response to past events already in the price is likely to be counterproductive.
Do we expect this volatility to continue?
Some research indicates that periods of volatility suggest continued volatility in the future. However, the important point is that there is no indication that volatility in itself is a reliable predictor of future returns. Indeed, returns in the years following periods of extreme negative performance have been on average positive.
Any strategy set for you has the long term in mind.
However, if you are feeling at all concerned about the impact that the recent events may have on your superannuation investments then maybe it's time to check your level of risk.
Contact our team at Mortgage Choice Armadale & Kelmscott on (08) 9485 0090, to discuss and review where you are at - because that is what we are here for; to work with you to achieve your goals.
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