Get comfortable investing when the market it down
‘Investing isn’t supposed to be exciting, if it is, you are probably doing it wrong.’ I tell many clients this in our first few meetings.
For those who have not yet entered the investment world, it is my job as their adviser to educate them over time about investing. Whilst yes, I am in charge of making that happen for my clients, it’s good for them to have an understanding of different concepts so that they know what I am doing for them and more importantly why.
One thing I always talk about is the fact that the market is going to go down. I can 100% guarantee that at some point (and more likely several points) the market will be going down. As an investor, you need to get comfortable with that fact.
This principal applies regardless of how you are investing. Some people have a sum of money and just want to invest it. Typically though, with my clients, if cash flow allows, I like to set up an investment and continue to invest small sums of money over time (e.g, as little as $100 per month). This will mean that sometimes you are buying investments as the market continues to fall.
Why would you want to do that?
Well, I have previously written about the fact that you can never truly time the market, so investing at regular intervals means that you get the benefit of dollar cost averaging. Sometimes you will be buying when the investment value is higher and sometimes you’ll be buying when the value is lower. The benefit of buying at different times means that over time you should get the average of the prices, which will come through in your returns.
Whilst it may not feel very comfortable, you should not necessarily shy away from buying in when the markets are going down. In the long run, these purchases will provide the best returns for you.
When the markets are going down, it’s a great time to invest, not to sell. Don’t let the drop in market scare you into selling everything you have before you ‘lose it all’. If you have a properly diversified portfolio put together by a professional, then the threat of ‘losing it all’ should not be a factor. Risk is the idea that there will be fluctuations in returns and the value of your investment, it is rarely the idea that you will invest and lose all of your money.
That is called gambling, and the type of investments that suit most people is not in this realm at all. I would never recommend an investment to my clients where there is a risk that they could lose absolutely everything.
So don’t stress when the markets are going down, it should be business as usual. If your adviser contacts you to make changes, or to tell you to stay put, listen to them. They are the professional. They have likely seen this many times before and know that it will all come out in the wash. And if you are worried, ask what they are doing with their personal investments.
Many advisers will be buying more when the market goes down. The recent downfall in the market over the last few months meant that my personal investments got a generous top up.
This post is from our resident senior financial planner, Cara Brett. Check out her details in our about us page.