There is currently much talk of market volatility and market corrections. It is often difficult to stay true to your strategy during
uncertain times and you must use the information available to you to make sound investment decisions. In a recent article, 5 Things You Need to Know to Ride Out a Volatile Stock Market, Franklin Templeton Investments explores what they believe to be the key things required to survive market volatility. Below is a summary of their 5 key points:
1. WATCHING FROM THE SIDELINES MAY COST YOU
Whilst it can be tempting to jump out of the market when it is declining, investors who park their assets in cash often fail to recognise the time when the market begins to improve. Failing to buy back in a the bottom of the market can prove very costly and reduce the opportunity for any gains.
Dollar-cost averaging requires regular commitment toinvesting regularly regardless of the price. This means that sometimes shares are bought at low prices, therefore more are purchased, and sometimes at high prices, resulting in fewer shares being purchased. Over time investors may find that they have paid less than the average price of the shares due to their regular purchases.
The table below demonstrates Dollar Cost averaging and how it works:
3. There has never been a better time to review your portfolio
When was the last time you checked your portfolio? Do you know your risk profile and how diversified your portfolio is? Your financial adviser can work with you to ensure that your portfolio is structured to best meet your goals and the level of risk tolerance that you are able and willing to undertake.
4. Remember your long term view and don’t be influenced by news and media
As mentioned at the beginning of this blog, there has been much new and attention regarding recent market performance globally. Whilst difficult it is very important that you remember you long term goals and do not let them be influenced by short-term, often reactive news reports which are not taking your goals or circumstances into account. Be confident in your decisions and the advice you have received.
5. Stay true to your beliefs and remember to doubt your doubts
There are no real secrets to managing volatility. Most investors already know that the best way to navigate a choppy market is to have a good long-term plan and a well-diversified portfolio. But sticking to these fundamental beliefs is sometimes easier said than done. When put to the test, you sometimes begin doubting your beliefs and believing your doubts, which can lead to short-term moves that divert you from your long-term goals.
To keep a balanced perspective, it is recommended that you review your long- term goals before making any changes to your portfolio. Of course if you have any questions regarding your portfolio or would like to discuss with us, please contact the office.
The table below also produced by Franklin Templeton gives a wonderful overview historical of the Bull vs Bear market
1. In this illustration the market is represented by the Dow Jones Industrial Average. Sources: © 2015 Ned Davis Research, Inc., Dow Jones & Company, Inc. Ned Davis Research defines a bear market as a 30% drop in the Dow Jones Industrial Average after 50 calendar days or a 13% decline after 145 calendar days. A bull market requires a 30% rise in the Dow Jones Industrial Average after 50 calendar days or a 13% rise after 155 calendar days. Average frequency, duration and market increase data do not reflect the current bull market that started on 10/3/11. Indexes are unmanaged and one cannot invest directly in an index.
The Battle Between Bulls and Bears- Franklin Templeton
5 Things You Need to Know to Ride Out a Volatile Stock Market – Franklin Templeton