Why I expect your investment to go down regularly
The benefits of property over shares, especially for new investors, is a computer screen does not tell you everyday whether the value of the property has gone up or down. This can be very reassuring for some people who struggle with the stress of investing. Shares on the other hand are a completely different beast.
Each and every day, a client can log into their account and find out the exact value of their shares. On days they go up, this can be great! On days they go down, people may panic.
An investment is not meant to consistently go up. If it did, I would be incredibly concerned because it may indicate something unexpected. On a daily basis, investments are expected to fluctuate. How much they fluctuate and how long you should hold them to ride the waves of this fluctuation is determined by your investment strategy. The longer the term your investment strategy, the more your investments are likely to fluctuate seeking a greater return.
Your investment will go down, and not only will they go down, they will go down regularly. The first time this happens may be confronting and please feel free to give me a call and we can talk it over but whatever you do, don’t panic. Panic causes people to make rash decisions and to sell out of their investment and once it’s sold you have zero chance of recouping that loss.
During the GFC the share market crashed horrifically with people losing up to 40% of the value of their investments. Panic was rife and people were selling out and crystallising all of these losses. I really don’t blame them, with the Australian Share Market having done exceptionally well for such a long time, Financial Planner’s had become complacent in explaining to people that crashes are an expected part of investment. In addition, many people felt the good times would last forever so held high risk investments (ones that fluctuate) at a time when they really should have downgraded their level of risk.
If however, you were one of these people and held onto your investments, proceeding with your investment strategy, you would today have likely recouped all of this loss plus some, such is the nature of investing.
It is important to know and understand that your shares will drop, and they will drop regularly. This isn’t necessarily as important as you think it is, what is important is having an appropriate strategy in place and ensuring you are in the right investments given your investment timeline and risk tolerance. If you have an investment strategy and your investment value drops, don’t panic, contact your financial planner to get their opinion on the matter before any decisions are made.
What about you, did you have any major losses during the GFC? If so, did you hang onto your investments or did you sell them?
This post is from Ben Brett. Check out our details in the About Us page.