Sound strategies a guide through volatility

investment strategies volatility

Investment strategies are a useful map through market volatility and prevent rash decisions being made.

Investment strategies should be designed to combat a period of volatility in share markets so they continue achieving set financial goals, with a mid-tier accounting firm advising investors not to panic despite current economic concerns.

HLB Mann Judd Sydney wealth management partner Jonathan Philpot noted investors have become too focused on daily market movements as opposed to the ultimate goal of their investments.

“Investors need look at the composition and weighting of their portfolio and whether it can achieve their goals over a period of time,” Philpot said.

“A home deposit, for example, might be a three-year investment plan, so the portfolio needs to be reasonably conservative. If the goal, however, has a five to 10-year horizon, the portfolio would require a more balanced approach, such as having at least 50 per cent in shares and 50 per cent in secure investments.

“Beyond that timeframe, a more aggressive investment strategy can be utilised; at least 70 per cent in shares would be an appropriate balance as there’s more time to recover from any corrections in the market.”

With the Australian share market recently experiencing its sharpest decline since the coronavirus crash, he said investors should review an investment asset class’s historical performance to comprehend its relationship with volatility.

“Experienced investors accept volatility and recognise it’s the price you pay for higher returns. Clients that went through the global financial crisis of 2008/09 dealt with the pandemic volatility well, whereas less experienced investors struggled with the extreme movements,” he explained.

“There’s a lot of historical data available on shares, property and bond market returns over time. The S&P 500 Index, for example, had 84 periods of decline between 1946 and 2022 of between 5 and 10 per cent, which is more than one a year.

“However, on average, it only took one month to recover the loss. In addition, 10 to 20 per cent declines occurred 29 times – or nearly once every two years – but again, it only took an average of four months to recover.”

Further Philpot suggested a written investment strategy be implemented that included minimum and maximum asset allocation ranges as investors without plans were more likely to panic and revert to cash.

“Selling shares because of volatility isn’t a sound investment strategy and is instead a means of losing money,” he said.

“There are plenty of reasons to sell a share, but volatility and market falls of 10 per cent isn’t one of them. You will miss the best trading days, which tend to happen right after the big falls.”


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