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.

In times 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…

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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.

http://www.cover.co.za/investment/the-destructive-power-of-emotional-investing-when-disaster-strikes

The destructive power of emotional investing when disaster strikes by Rob MacDonald.

Let’s take 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.

The 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.

History 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 others.

Sharemarkets by their very nature are volatile, and they can and do react swiftly to events – but that doesn’t mean investors should follow suit.

It’s at 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.

During 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.