A chief economist has advised individuals to avoid being influenced by market noise through maintaining the disciplined practice of checking investments less frequently.
To this end, AMP Capital chief economist and head of investment strategy and economics Shane Oliver has reminded individuals not to lose sight of the fact that in the main they are investing for the long term.
“If you think about the share market, turn on the nightly news and track it from day to day, it’s virtually 50/50 if you get good news or bad news on the share market … in Australia, if you looked at the share market once a decade over the last 120 years, 100 per cent of the time you will have got good news,” Oliver said.
The recommendation incorporates two of his top five investment mantras, with another one being for individuals to ensure they make the most of the power of compound interest.
“The way to make the most of compound interest is to invest in assets that over a long period of time grow with the economy and provide higher rates of return … if you’d put $1 in the Australian share market in 1900 and reinvested your earnings on that investment, it would have grown to over $600,000 today, with an average return of about 11.5 per cent,” he noted.
Further, he emphasised the importance for investors not to allow their long-term strategy to be disrupted by market cycles.
“Soon after I started my career in investing in 1984, the share market fell 50 per cent over two months in 1987 … if I had sold everything, then I would have missed out on the recovery of the share market and the magic of compound interest,” he noted.
The fifth item of Oliver’s top five investment mantras is for individuals to employ a well-diversified portfolio where asset class allocations have low correlations with one another.''