A guide to staying calm and focused when markets are anything but.
Volatility is uncomfortable, but it’s not unusual
It’s natural to feel uneasy during times like these. Markets are unpredictable. Headlines are dramatic and changing daily. And the value of your investments may have taken a short-term hit.Market volatility isn’t new, and it isn’t a reason to abandon a long-term strategy. In fact, these periods of uncertainty can often give rise to some compelling opportunities. While it may feel like the wrong time to invest, staying invested through these periods has historically led to better outcomes.
The Cycle of Market Emotions Is Real – And It’s Okay to Feel It
Investing isn’t just about numbers – it’s emotional. When markets rise, we feel confident and optimistic. When they fall, fear and anxiety can set in- and that can drive decisions that do more harm than good.
This is a perfectly human response. We’re wired to seek safety when things feel uncertain. But emotional decision-making and successful investing rarely go hand in hand.
There’s a well-known concept in investing called the “cycle of market emotions”. It shows how investors often become most confident at the top of the market – when financial risk is actually at it’s highest. And they tend to feel most fearful and discouraged at the bottom – just when ‘financial opportunity’ is at its greatest.
Panic selling, or “capitulation,” often happens near the low point in a market cycle – just before recovery begins. That’s why moving to cash after a market drop can lock in losses and leave you out of the rebound. It’s also why staying invested, even when it’s uncomfortable, often leads to better long-term outcomes.Some of the biggest gains in market history have happened shortly after large declines. If you miss the best 10 days in the market over a 30-year period, your return could be more than 50% lower than someone who stayed invested throughout.
You Can’t Time the Market – But You Can Prepare for It
Even experienced investors can’t time the market perfectly. Why? Because it’s nearly impossible to consistently get both the exit and the re-entry points right. Instead, the better approach is to use strategies that reduce the impact of timing-like diversification, and dollar-cost averaging.
Diversification: Not All Your Eggs in One Basket
Diversification means spreading your investments across different asset classes – such as shares, bonds, cash, property, and alternatives – as well as industries and geographic regions.When one area of the market is under pressure, others may be more stable or even performing well. A well-constructed, multi-asset portfolio can help reduce the impact of market downturns, smooth out returns and capture opportunities in different parts of the market as they emerge. Diversification doesn’t eliminate risk entirely, but it’s one of the most effective tools we have to manage it over time.
Dollar-Cost Averaging: A Steady Way Through Uncertain Times
This approach involves investing smaller amounts at regular intervals, rather than all at once. It’s a way to keep investing even during volatile periods and to reduce the emotional pressure of “getting the timing right.”
It’s the same principle behind regular superannuation contributions, where your employer puts in 11.5% of your salary regularly. You’re always in the market – buying more when prices are low, and less when they’re high.
While dollar-cost averaging doesn’t guarantee a profit or protect you from losses, it does lower the risk of investing everything just before a market drop. Best of all, it helps take emotions out of the picture-so you can stay focused on your long-term goals.
The Bottom Line: Patience, Perspective, and Plannings
Markets will continue to rise and fall, that’s inevitable. But investors who stay the course tend to come out ahead. Whether you’re accumulating wealth, managing a windfall, or drawing income in retirement, a thoughtful strategy, built around your goals and tolerance for risk, remains the most reliable path forward.
The Whitehead Financial Team
