Five Considerations For Investment Through Volatility
1.) Investment is a marathon, not a sprint
During periods of decline it can feel like it’s time to “get out” of a market, but if you pull out of an investment when the markets have fallen, you lock in a loss and miss out on the positive returns of a market recovery.
Historically, periods of uncertainty have typically resulted in a recovery. The “dips” that came from the crash of 1987, the major conflicts over the past few decades, the GFC and so on were followed by periods of growth that, typically, outpaced the losses.
While you wait for your portfolio of stocks and other assets to recover through a volatile market, it’s important that the money that you need is secure. It’s a good idea to have 6 – 12 months of living expenses set aside in a bank account or interest-bearing investments.
Other options for stable asset investments include treasury securities and bonds.
Deepening the diversification of your portfolio is an important step to take during periods of volatility. The more your wealth is spread, the less the impact will be from any single decline.
Diversification across multiple market segments and even international markets is easy, even for inexperienced investors.
A further step you can take with diversification is to add dividend investing to the portfolio. This is when you invest directly in shares from companies that pay a dividend, and therefore gives you a cash return per share every year.
Not every company does this, and during times of stability, investing in growth stocks is often more rewarding. By paying a lower dividend, a company can invest some of the profits into the business instead, with the goal of increasing the value of the company, and therefore the share value, and give the investor greater returns.
However, during periods of volatility, the direct money paid via dividends is a more predictable return. Furthermore, dividend-paying stocks are seen as lower risk investments and are therefore more stable.
The property market is another opportunity for Australian investors. Over any given 10-year period, the value of the market has increased, meaning that holding property for the long term is a stable option for wealth accumulation. Additionally, owning an investment property allows for the generation of regular income via rentals.
For those that don`t wish to buy a property outright, there are property options that allow investment into property without direct ownership over any one building. Through these funds investors will still see regular income payments, based on the percentage of the revenue generating properties in their fund.
Cool Heads Will Prevail
Most importantly, however, a volatile market is not an indication to retreat.
It is important speak to your financial adviser at Oracle to discuss the diversification strategy, especially as the volatility is likely to continue in 2023.