Since the beginning of August, the All Ordinaries Index has fallen over 10% from 4515 to 4057. That is in just 6 days of trade! All global sharemarkets have been affected with America falling by 14%. So in the face of such frightening figures, what should you do? Here are my top ten tips to survive a market downturn.
1. Firstly and at all times, don’t panic!
2. Avoid listening to the media. I don’t mean pretend it isn’t happening or hide your head in the sand! However you can watch the news 24 hours a day and it’s the media’s job to make every news item as interesting and as exciting as possible to keep you watching. Lots of experts are interviewed giving their opinions as well as people on the street. This increases your feeling that you should be doing something.
3. Ask yourself what impact the downturn has on your lifestyle today, in one year’s time and in 5 year’s time? If the answer is no impact, and this will generally be the case for most people under 50, then there is no need to worry and no need to do anything.
4. Revisit your financial goals. Remind yourself what your investments are for and when you will want to draw on this money. In general, the largest investment other than your house is your superannuation and this can only be accessed after age 60 for the majority of people.
5. Revisit your investments. Remind yourself what you have and how it will be affected by the downturn. In general when global markets fall, the Australian dollar also falls, which has the effect of reducing the impact on any international shares/ funds. In addition, when money flows out of shares it has to go somewhere, and therefore it drives up the price of fixed interest investments and gold, which are considered safer investments.
6. Ensure you have a cash reserve. This is an emergency fund for you to draw on to pay unexpected bills or to save for short term goals, for example, a holiday. For people who are retired or near retirement, you should aim to have at least 2 years of pension income in cash, so that you can weather any short term downturn.
7. Revisit your risk profile. Do you consider yourself a growth investor, therefore willing to take on a higher level of risk in order to achieve higher returns? Alternatively, do you wish to keep your funds very secure even though this means a low return? During a serious downturn even growth investors can become very uncomfortable. Remember this feeling when markets turn around and start performing well. It is the easiest thing to forget!
8. Diversification is key! Don’t put all your money in one investment vehicle.
9. Before you do anything, speak to your financial adviser.
10. If you do not have a financial adviser, find one, they could save you a lot of money! I will be very happy to assist you.
This article contains purely factual information and/or general advice and does not constitute personal financial product advice. The content of this article does not take into account your personal objectives, financial situation or needs and you must determine whether it is appropriate to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.
About the Author:
Hayley Marsh was an Authorised Representative of Securitor Financial Group Ltd ABN: 48 009 189 495 AFSL: 240 687 at the time of writing this article. She is no longer available for new clients, however we have a relationship with another excellent Financial Planner should you require assistance. Just ask!