Smart Investor Moves During Market Turbulence

Sharemarket volatility is sparking fear, but financial advisers suggest a steady approach may protect your long-term gains better than reactive selling. While there may be chances to pick up discounted assets, trying to time the market could lead to costly mistakes, especially for superannuation savers and retirees navigating uncertain times.

After the Australian sharemarket experienced its sharpest one-day fall in 5 years, anxiety among retail investors and retirees spiked. With more volatility expected, the instinct to sell investments and flee to cash is understandable. But experts caution that this emotional reaction can lock in losses and negatively impact long-term returns.

Financial advisers recommend 7 actions, beginning with doing very little. Staying calm and resisting the urge to drastically change your portfolio is often the best course. Historic data supports remaining invested, even through steep downturns. For instance, missing just 20 of the best-performing days over a 30-year period can reduce annual returns by nearly 3 percent.

Investors are also urged to stick with their strategies rather than converting super funds to safe but low-return cash options. Some advisers warn that those who switched out of equities during past crashes may have delayed or derailed retirement. Despite downturns, equities continue to deliver long-term compound growth near 10 percent annually.

Timing the market isn't just difficult, it’s often counterproductive. While some professionals move assets to cash, most investors struggle to re-enter at the right time. Studies suggest that selling after a plunge and waiting to reinvest often results in buying at higher prices, repeating a lose-lose cycle.

However, the downturn also opens windows of opportunity. Long-term investors may find value in quality companies that are currently undervalued. Using strategies like dollar cost averaging lets investors steadily build portfolios through turbulent periods without being dictated by fear or market timing.

Receiving a windfall, such as an inheritance, during a downturn could be a rare opportunity. With iconic companies available at lower valuations, some planners suggest this could be the perfect time to initiate or expand investments, provided there’s a plan in place to stay invested for the long haul.

Still, grabbing so-called bargains requires caution. Not all depressed assets are worth buying; overvalued sectors like cryptocurrency and tech can continue to slide. Rather than chasing the biggest recent losses, focus on diversified, fundamental-based investing with long-term goals.

Source: Australian Financial Review, Black Rock, Dupree Financial