Market volatility keeping you awake at night? Managing your emotions as an investor can be tough. The roller coaster ride of markets can cause concern to even the most experienced investor. However volatility in markets is actually the norm, so we need to arm ourselves with some techniques to manage our behaviours and emotions during market extremes.
MESS IT UP is an acronym we use to help you understand some of the things you need to consider as an investor:
M – Media. The media is in the business of selling stories and they understand that the ratio of fear to greed is four to one. In other words you are four times more likely to act out of fear to protect yourself than because of greed. Don’t get caught up in the hype.
E – Emotion. When it comes to investing, always make logical, calm, calculated decisions thinking about the long term whilst understanding the short term perspective.
S – Short-term-focus. Don’t focus on the current latest and greatest. History has shown time and time again that last quarter’s star performer has proven to be next quarter’s underperformer. There is a lot of research out there on this.
S – Single issues. Many investors get caught up on one issue – such as Brexit, trade wars, the oil price, the US president. It is always important to have perspective and to consider whether it has relevance in the grand scheme of things. Will you be worrying about this in 5 year’s time?
I – Illiquidity. Not having enough in reserves makes you vulnerable. Consider your needs (this will differ greatly for retirees and accumulators). This is extremely important and having a buffer/reserves is an important component in all investment plans.
T – Timing. Time in the market is more important than “timing the market”. Consider a regular savings plan when investing into the market (also known as Dollar Cost Averaging) as this provides a buffer against market extremes.
U – Under diversification. Most people know not to “put all your eggs in one basket” so don’t select a small number of companies and hope they perform well. Spread your investments over a large range of companies, sectors and industries to reduce your overall exposure to any one company.
P – Performance. Picking stocks that have consistently outperformed is not a real or sustainable proposition. This can also lead to panic when markets drop. Performance is a guide and should align to your risk tolerance levels.
We hope this acronym helps you when you need it. Remember your time horizon should be aligned to your long term goals. If you are concerned about markets or your portfolio, please get in touch.
This information contained in this document has been provided as general advice only. The contents of this document have been prepared without taking account of your personal objectives, financial situation or needs. You should, before making any decision regarding any information, strategies or products mentioned in this document, consult with your GPS Wealth Ltd financial adviser to consider whether it is appropriate having regard to your own objectives, financial situation and needs