Here are 5 practical strategies to help you to do just that.

From Warren Buffet to Howard Marks, the very best minds in the investment world all dispense similar advice during times of market volatility: Don’t sell in panic, hold your nerve and stay focused on the long game. But even the brightest investment minds can’t predict the future; so how realistic is it for the average investor to stay calm amidst extreme market volatility? By deploying the following 5 strategies, even the most nervous investor can start to take a deep breath and step away from the ‘panic sell’ ledge.

1 Look at the big picture.

One consistent we can rely on, is that there will always be ‘events’ – whether that be a global pandemic, a war, or even (dare I say it..), Brexit. And these events invariably cause huge fluctuations in the global stock markets. No-one, not even the best investment minds, can predict the future; but decades of market history show us that when you zoom out from short-term fluctuations and look at the long-term trends, the global stock markets have consistently outperformed cash over time – by a wide margin.

When you look at the big picture, the highs and lows of the global markets are consistently working their way in an upwards trend. The global financial markets have rewarded long-term investors. People expect a positive return on the capital they deploy, and historically, the global equity and bond markets have provided growth of wealth that has more than offset inflation (see Euro chart below, 1975-2018).

2 Keep in regular contact with your advisor.

If you are finding it hard to hold your nerve, you can always talk your concerns through with your financial advisor.

When your future hopes and dreams are tied up in your investment and pension assets, it’s not always easy to look at a current, volatile situation pragmatically and keep a level head, so let your advisor guide you through the storm. A financial professional will be able to explain market trends and fluctuations and remind you of the long-term view and goals you agreed at the outset of your investment journey.

Remember, the very reason investment returns outperform cash gains so significantly, is the risk and reward factor. The ups and downs of the investment markets are all part of the journey towards positive long-term gains. The long-term investor should be rewarded for staying the course.

3 Ensure that your portfolio is as diverse as possible.

Sadly, there will be unfortunate situations where even some of the most promising businesses won’t make it through the tough times. By ensuring that your investment portfolio is diversified across industries, countries and asset classes; you can offset the losses from some of the inevitable casualties. Your advisor will have ascertained your risk appetite at the very start of your investment journey, and thus put together a globally diversified portfolio that’s right for you.

4 Step away from the noise.

Daily market headlines and fluctuations are certain to make any investor anxious during volatile times.

During the same two-week period in March 2020, the following dramatic headlines both appeared in the news: ‘ Wall Street plunges on worst day since 1987’ and ‘Dow soars more than 11% in biggest one day jump since 1933‘. How can anyone be expected to stay calm with such extreme headlines? Step away from the click bait.

Also, try and limit the amount of times you monitor your portfolio, which could ignite panic and potentially lead to irrational decisions. If you want to reduce your stock market related stress, monitoring your portfolio less regularly is a good idea. Trust in the plan that was initially put together for you for the long-term. As Warren buffet says, put a solid portfolio in place and then step back.

5 Reframe the situation – look for the opportunities

Howard Marks tells us that there are two risks investors must balance – the risk of losing money, and the risk of missing an opportunity. When markets crash, there is opportunity in abundance. For those investors already buying in to the market on a cost-averaging basis, they will already be experiencing the benefits that current low prices have to offer. For those already invested in the markets, now may be the time to reconsider the risk level and asset allocations within their portfolios and decide if certain changes need to be made.

A bear market provides opportunity for many. Step away from a defensive position and work with your advisor on how you can make the current climate work to your best advantage.

Author: Karen O’Brien.

Karen is the Client Services Manager at Heritage Wealth Management, a Financial Planning practice based at 27 Cook Street, Cork.

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