In turbulent times, stick to your long-term wealth strategy
By Vanguard
Investing strategy
Navigating volatility
Why investors are urged to resist impulsive decisions in turbulent times
Investors are being urged to resist making impulsive decisions about their shares and other assets as the conflict in the Middle East plays out.
Market fluctuations in the wake of the war in the Middle East are a timely reminder for investors to stay calm when dramatic world events unfold.
Following this latest conflict, media headlines have flagged the likelihood of ongoing global stock market tremors, trade-flow disruptions and surging oil prices. Reserve Bank of Australia governor Michele Bullock has also suggested the war could lead to higher interest rates.
In response, some investors have been snapping up cash, while others have reportedly poured their money into gold-mining companies and oil stocks.
The key message for investors, however, is to play it safe. Middle East unrest clearly adds a new dimension of uncertainty to markets, which could tempt investors to move to cash or other safe-haven assets. And while it is important to be aware of world events, in situations like this it’s critical for investors to focus on their long-term goals.
Investors should continue to follow Vanguard’s Principles for Investing Success, while maintaining perspective and long-term discipline. Those principles recommend:
- Setting your goals – create investment targets that are measurable, attainable and have a long-term focus.
- Staying well balanced – align your strategy to your goals and have a well-diversified portfolio of assets to help reduce risk.
- Minimising your costs – know that while you cannot control what happens in markets, you can check and compare the amount you pay in fees to invest.
- Maintaining your perspective – avoid rushed investment decisions and remain committed to your long-term goals.
Don’t lock in losses
One of the biggest risks when markets are unstable is for investors to sell off stocks or other assets as prices dip or tumble, effectively locking in losses on an asset that may soon rebound.
Time after time, research has underlined the importance of holding tight amid turmoil, rather than making rash decisions in response to geopolitical events. Examining geopolitical events since 1963, demonstrates that while equity markets may react negatively to the initial news, geopolitical selloffs are typically short-lived. Geopolitical events don’t typically cause equity market losses over these periods.
Amid speculation that the Iran conflict could drag on, it makes sense for investors to engage with their financial adviser to consider all the implications – negative and positive – of the war.
More than likely, however, they will tell you to stick to your long-term financial strategy.
This article contains certain ‘forward looking’ statements. Forward looking statements, opinions and estimates provided in this article are based on assumptions and contingencies which are subject to change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions. Forward-looking statements including projections, indications or guidance on future earnings or financial position and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. There can be no assurance that actual outcomes will not differ materially from these statements. To the full extent permitted by law, Vanguard Investments Australia Ltd (ABN 72 072 881 086 AFSL 227263) and its directors, officers, employees, advisers, agents and intermediaries disclaim any obligation or undertaking to release any updates or revisions to the information to reflect any change in expectations or assumptions.