I was reading a post on the askaboutmoney website from a novice investor who dipped his toe into the stock market at the start of August. He was buying with a 15 year investment term in mind but after just 6 weeks, he sold out at a 10% loss. It seemed he was having too many restless nights worrying about what was happening in the markets.
He’s not on his own either. In August, there was a huge sell off as people fretted about the global economy. People have got comfortable with double digit returns. Afterall, since markets hit rock bottom in March 2009, the only downturn was the Greek crises in 2011, otherwise there has been very little volatility in the markets. With the correction in August and talk of further fall in equity markets, people’s resolve is being put to the test.
To avoid making rash, irreversible decisions that will cost you money, make sure you know the following:
Before making an investment, know how much you can lose as well as make. Saying “I didn’t know it could fall like that” is not a valid excuse, you should know before you commit your money. If you are not comfortable with it, reduce your risk exposure.
Know what you want your money to do for you and by when. If you know what the end game is, you can reduce your risk or sell when the goal is reached.
‘The Euro is going to collapse Joe. I’ve taken out all my money and I’m flying to Zurich in the morning to open a Swiss bank account.’ Great entertainment that had the listeners hooked but that is all is was, entertainment. The information was saying that there was no way a tiny economy was going to cause a global market crash.
It is the same now. Plenty of people are willing to go on the radio or tv and tell us there is a stock market crash on the way. There very well be, there always is, but what is the basis for their declarations? Hard facts or do they have a book to promote? Good financial decisions are made on information, not noise. Greece – flying to Switzerland
If you have a 15 year term and have got your investment and risk strategy right from the outset, look at your portfolio once a year. Looking at it every week will drive you crazy.
The risk profiling provider, Finametrica, analyses the falls and rises of various portfolios since 1970. A 100% equity portfolio fell 68 times since 1970 and 44 of those falls were for just 1 month or less. If you looked at your portfolio at least once a month, you’d have a loss 68% of the time. Someone who views the same portfolio once a year sees it in profit 65% of the time!
When you invest, know your risk and return, invest your money and don’t worry about it. There will be ups and downs but that’s what happens.
If you have any questions, please email me directly at steven@bluewaterfp.ie