More and more these days we hear of, or experience a disaster of some
kind -- and it seems to be almost weekly.
There were the Australian floods, the Christchurch earthquakes, the
Japan earthquake and tsunami, the various North African uprisings, Libya’s
dictator and now the large Turkey earthquake.
No doubt, many investors will be asking themselves what they should do with their investments.
The answer is simple: stick to your long-term plan. For most investors,
this will mean sitting tight and doing nothing.
of upheavals and uncertainty, there is always a temptation to do something
hasty, but it should be resisted. Unless you actually need your money now,
withdrawing is a kneejerk reaction, rather than a rational response.
These are emotional responses…
Emotion causes investors to panic during market
dips or local economy shocks, become greedy when markets rise, follow herd
behaviour, become irrationally attached to their investments, switch too often
between funds and take on too much or too little risk. This behaviour has the
ability to have a significantly negative impact on investment returns…
Understanding and acknowledging your emotions and
the influence they have on your investment behaviour is the first step to
controlling them. Investors with certain personality types, such as confident
alpha males, are often more prone to making emotional investment decisions.
Unfortunately, these are often the very people who are least likely to
acknowledge that that they are predisposed to doing so.
The destructive power of emotional investing when
disaster strikes by Rob MacDonald.
a look at what’s happening. There has been loss of life (which is absolutely
tragic), there has been economic disruption and massive disruption of property.
Oil prices have risen, currencies have become more volatile and share markets
have reacted nervously and in many instances taken a tumble.
natural emotional reaction for many of you is probably to withdraw your money
from various investments and head for the bank.
However, this could potentially be the wrong move.
shows there is every indication the markets will rebound – and even go on to
reach new highs. However, by selling now, the most likely result is that you
will take an immediate loss, at the same time creating buying opportunities for
by their very nature are volatile, and they can and do react swiftly to events
– but that doesn’t mean investors should follow suit.
times like this, investors need to keep their eyes firmly on their long-term
strategies. As terrible as recent events are, retreating from the markets won’t
help anyone – yourself included.
the next few days or weeks while there is uncertainty and confusion in the
financial markets, the best response for investors is to stay focused and ride
out the volatility. If you are invested
in good quality actively managed funds, then your fund manager is probably
closely monitoring the situation and taking advantage of the opportunities that
volatility creates. The manager will be looking at what stocks are likely to
show significant growth as and when the
rebuilding phase commences and will have made a decision to purchase these
stocks at a discounted rate. As always, talk to your financial adviser for
specific advice relating to your personal situation or contact Lyn.