“If you want to have a better performance than the crowd, you must do things differently from the crowd.”
– Warren Buffett
It is perfectly understandable that the recent market volatility has increased your nerves about what’s next and what you should be doing with your investments. Here are some of the worst moves and common investor mistakes that you should avoid during these volatile times:
1. Trying to Pick the Bottom
The average investor who missed out on the top 10 trading days over the last 20 years, generated a return that was approximately 40% less than those who stayed invested and remained on track to achieve their long-term goals. Trying to pick the bottom will often lead to under-performance of the market and missed buying opportunities. Focus on buying value when assets are cheap and reducing your holdings when they’re expensive, rather than trying to time the market peaks and troughs.
2. Listening to the Media
Firstly, it is commendable that you read personal finance blogs and relevant information to increase your knowledge base. It’s important to recognise that sensationalised market ‘noise’ spread by journalists and media sources will rarely lead to positive investment outcomes. You must stay focused on your long-term goals, your investment strategy and remember that market ‘noise’ should never replace sound research and analysis.
3. Ignoring Common Sense When Investing
Imagine if we applied the same behaviour to shopping as we do to investing. When prices are dropping in the stores, we would stay away, and when prices were rallying and at their peaks, we’d be buying more thinking it’s a bargain. This level of common sense is rarely applied to investment strategies, but is often what leads to the greatest financial outcomes in achieving your goals.
4. Taking the Wrong Level Risk
It’s important that during these periods of market volatility you monitor the level of risk you’re taking on. Remember, risk and return is a constant trade-off and yours’ should be aligned to your own personal financial goals. Taking on too much risk can lead to uncomfortable levels of market volatility, and taking too little risk on can lead to under-performance and you not achieving your financial goals. Neither option is a positive outcome and an important reason for you to stay the course. Discuss the level of risk you’re taking on with your adviser and discuss the potential variations and how you’ll manage these over time.
Keep these strategies front of mind during these periods of market volatility and ensure that you’re not making these mistakes.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Adviser with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to international and local professionals in Singapore.
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