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Loading ...Sharemarket volatility – friend or foe?
April 9, 2008 by Josie Kay
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One day it’s up and the next it’s down. In recent times the share market has experienced a lot of volatility which leads to some very nervous investors. There are a number of reasons why volatility seems to be prevalent. Technology, for one, has advanced enormously. At the push of a button investors can now move money in and out of markets at any given time. These movements affect market values much faster than they used to in the past. Another reason is the actual volume of money that is moved in and out of markets. Currently we have a larger proportion of share market investors who want to maximise investment returns, for example, baby-boomers nearing retirement. It’s wise to note that not only does the share market experience volatility, in fact most investments do, including residential property and fixed interest.
The only reason you don’t notice the ups and downs of residential property valuations is that you don’t have someone knocking on your door everyday giving you a valuation (wouldn’t that be interesting!).
It is important to accept that volatility is a normal part of investing and understand how best to benefit from volatility, rather than to be fearful of it.It’s hard to put volatility into perspective with headlines like “the market fell sharply today” and “XYZ stocks tumbled”. This sensational commentary distracts the investor from focussing on the big picture. Generally speaking, with quality investments, higher volatility leads to higher long-term returns.Volatility is not only about falling values - it’s actually about rising values too. So volatility is something you can look forward to if you have quality investments. At times of market volatility we all need to be reminded that reaping the rewards of investing long term often requires enduring the risk of some short term discomfort - whether financial or psychological!Josie’s Tip: You have heard it plenty of times before - invest for the long term! Your time frame for investing in the share market should be at least 7 years, ideally even more. In the big picture, volatility has had little or no impact on long term investment share market returns and is usually a short term problem. In other words, stay calm! I have seen many people lose money because they have crystallised their losses i.e. panic sets in, they sell their investment, just to see it go back up again. The key is to invest in quality assets with a record of growth, increased profits and/or regular dividends. If you seeking quick gains in the sharemarket, The MoneyOrganiser would probably label you more as a ‘gambler’ than as an ‘investor’. Still searching for more on ShareMarket Volatility?
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[...] A word of warning though. The tool only supplies info to December 2007. As you know the sharemarket has fallen a bit since that time, approximately 25%. Surprisingly, the figures still look quite good for share [...]