Q: I am extremely concerned about my exposure to the share market. Is now the right time to be invested in shares?
A: In a volatile market it is often difficult to stay on track with your investment strategy.
If you are investing for the long term, you may do more damage trying to time your exit and entry to the market. Investors who park their assets in cash often fail to recognise the time to get back in the market.
If you are worrying about your money, your appetite for risk may have changed. It could be your time frame for investing is now shorter, your circumstances have changed or there has been a change in market outlook. Assess if your change is permanent or a response to short-term factors such as markets volatility or valuation.
If your investment time frame has changed, do you have the time for your investments to recover through the cycle? All Investment markets run in cycles, some are short-term corrections, some are medium-term business cycles of 3 to 5 years and others can be long-term secular swings of 20 years. Make sure your portfolio can weather the particular cycle and ensure you have sufficient time to allow your portfolio to recover.
Assess the quality of the assets within your existing portfolio. If they are direct equities, consider the short and longer-term prospects of the company.
If you invest in Managed funds, ensure you are comfortable with the investment approach of the manager and their approach to managing risk within the portfolio. Monitor where they invest, assess if they have been true to their investment philosophy and invested where they said they would.
Diversify your portfolio into a range of sectors, companies and regions. Critically consider how concentrated your portfolio is to the Australian market and particular sectors such as banking.
Recognise that market volatility can create attractive opportunities. A stock market correction can be a good time to invest in equities but do not presume a “hot” stock that falls in value is now cheap and will recover.
Over the long term, equity risk is usually rewarded. Empirical studies have shown the value in long-term compounding returns and the benefits of investing a regular amount into a portfolio on a regular basis regardless of whether markets are rising or falling.
The sheer volume of information and opinion available in the media has grown enormously in the digital age. If your circumstances have not changed, it doesn’t hurt to tune down or turn off the flow of information that distracts us from our main game which is investing for our future goals.
The best way to navigate a choppy market is to have a good long-term plan and a well-diversified portfolio. But sticking to the fundamentals is sometimes easier said than done. Seek advice from a qualified professional. That “sanity check” should provide you with a definitive answer to the future steps you should take.