5 tips to weathering periods of investment market volatility

 
Investment returns have recently dipped into negative territory after four years of double-digit returns, making some people nervous. Most people understand this is a normal part of the investment cycle and that investors who remain calm and maintain a long-term view have little to worry about.
 
1. Remember! Volatility is a normal part of investing
Investment markets move in cycles, and the volatility we are now experiencing is a normal part of the economic cycle. It’s important not to make quick decisions, as markets generally come back, and usually to higher levels.
 
2. Don’t crystallise your loss
When share markets fall, it can be tempting to move your money into more conservative investments like cash. If you do, then you will have realised that loss. More often than not, it’s best to stick to your long-term strategy and ride out the dips. By sticking with your current investment and not moving any losses (which are only ‘on paper’), you usually find that markets have a habit of rebounding at the same rate or faster than they fell.
 
3. Don’t try to time the market
Even the experts can’t time when the market is likely to turn around. By trying to time when to get in and out, you may miss a strong period of growth and compound your losses, leaving you worse-off than if you’d just stayed put.
 
4. Learn from the past
History has shown that the market tends to over-estimate the impact of shocks in financial markets on the broader economy and company earnings. The stock market crash of 1987, for example, saw the US Dow Jones index drop 22.6% in a single day. This caused a lot of panic at the time, but within a few years, US shares were once again one of the top-performing asset classes.
 
5. Take a long-term view
Superannuation is a long-term investment, and with almost 75% of legalsuper members under 45 years of age, most members are well-placed to ride out short periods of volatility. Following four years of double-digit returns, the long-term crediting rate of legalsuper’s Moderate investment option remains strong despite the volatility in 2007/08.