Earning investment returns that grow your real wealth over time requires acceptance of some level of volatility in returns. But, the emotional roller coaster of markets makes it very difficult to remain calm and rational in the face of swift market selloffs. The urge to follow the crowd is strong when those around you are yelling “sell”!
1.AVOID EMOTIONAL INVESTING
Trying to “time the market”, that is, finessing exposure to try to avoid losses,can mean that your portfolio Equities provide great potential for capital growth
2. VOLATILITY A NORMAL PART OF INVESTMENTING
Market volatility is the price to pay for enjoying strong long-term returns and the future often looks bleakest at the point the market has already priced in any short-term bad-news. Market falls of 5%,10& 20% are not uncommon.
3. UNDERSTAND LONG TERM EQUITY RETURNS
Famous investor Ben Graham was fond of referring to “Mr Market” as a fellow market participant that would offer you a high or low price for your shares depending on which side of the bed he woke up on.
4. USE DIVERSIFICATION TO SMOOTH OUT THE RIDE
Diversification is a strategy that mixes different assets together which perform independently over short-horizons, but which all contribute to the portfolio return over the long term. Diversification should provide a smoother path for investment returns and can reduce the risk of large draw downs versus a portfolio invested in highly correlated asset classes.
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