Lessons from the past, Do you have a strategy?
Smart Money Invests

Having advised through many market downturns (many you will not even remember they were so short lived) and some you all will like 2008, here are a few tips regarding what to avoid in times of volatility.

What we are seeing now is challenging and for many frightening.

For long term investors, it is important although hard, to keep the long term in mind .

Markets will always recover, and those investors that come out the other side better than most simply don’t make common mistakes led by emotions.

The important aspect for investors is to have a process, now is not the time to start trading if you never have, or to change your strategy completely day to day !

This time next year markets could be higher than they are now …. Or lower.

It’s time like these you need a sound strategy, an investment portfolio (not a guessing portfolio) .

We have ten investment principles which we can share with you that will help guide you through this tough time .

What to avoid in volatile markets

A lack of diversification. After 2008 many investors failed to diversify. Some markets will recover faster than others. Don’t invest all your assets in one market.

Investments with no liquidity. If there is a call on the fund and they close the fund, that is not good for you as an investor.

Highly concentrated strategies. For example, only holding a few stocks, or using a fund that is taking big bets in a certain sector or region.

Hedge funds, the evidence shows that you will pay 2% or more for bond like performance. There is no evidence that hedge funds perform better in good markets, bad markets or volatile markets.

Any fund that claims they will outperform in a falling market without showing you the evidence they can do this. (they can’t with any certainty, but they will take your money to try).

Any cash style fund offering “safe rates” of 3-4% above the cash rate. There is no free lunch when investing. If the rate is a lot higher the risk is a lot higher compared to cash.

  • Investments with high debt.
  • Anything you don’t understand
  • Anything with an opaque structure.
  • Any investment that has a commission attached to it (front end or ongoing).
  • Maybe anything sold to you by a bank?
  • Derivatives like options if you are not a professional manager, e.g. you have purchased a “program” that shows you how to get rich.
  • Investments with high costs

There may be more, but if you can review your portfolio and ensure none of your investments fit into any of the above, when markets recover you will have a better chance of success.

Remember markets will be highly volatile from time to time. It’s important to stick to your strategy, ensure you are comfortable and go and relax and do the things you enjoy. You can’t control the day to day movements in the market. This may be a bad year or a good year. Anyone who is trying to tell you exactly what will happen is simply trying to take your money from you.

We have a full advisory business, but if you are looking for general advice and are not ready or don’t have the complexity for personal advice, check out scientiam.com.au for more readings and insights on how markets really work and how as an investor you can learn how to really invest and not gamble.

It’s your future.

Here’s to smart investing using science not guesswork.

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