These seemingly dramatic falls seem to come around every 5 or 6 years so investors should be psychologically prepared for them but I suspect few are totally relaxed...lets be honest, its scary seeing 20% of your portfolio value disappear.
The good news is that however much the markets fall, and when you think they have bottomed out…they fall more, in the long run, they always bounce back. This happened in 2008/09 and before that in 2001/02.
I guess its at times like this you can really evaluate you attitude to market risk and volatility and work out the best equity to bond allocation which feels most suited to ride out any storm. My current mix is 60% equities to 40% bonds and this feels about right for me at the present time. My plan is to reduce equities and increase bonds over the coming 5 - 6 yrs until I get to 40:60 mix.
Don’t Panic Mr Mainwaring
Investing is all about the longer term. Those investors who can stick with the process during the stormy periods should reap the benefits over the longer periods.
Of course, we are all ‘buy n hold for the long term’ when markets are positive. It can be a little more tricky when there is a sudden global sell-off. Some investors will get nervous and may well make hasty decisions as they see all the gains of recent years draining away. Fear is a powerful emotion and can get in the way of logical thinking and well prepared investment plans get sidelined.
Without a sound investing plan, its easy to get blown away by volatile markets. Of course, whilst it will help to have a good plan from the beginning, no one can know how they will react emotionally to a sharp sell-off in global markets until they actually experience the raw feelings that such a climate of fear can bring about.
Perhaps now is a good time to re-evaluate the plan and to see whether it is still going to keep you in the game and get you where you want to be in 10 or 20 years time. My personal plans and strategy have been revised over the past year and I am glad to have made the move away from individual shares.
I know with my shares portfolio that even in the relatively calm waters of the past couple of years, the volatility and share price movement was becoming a little too much for my personal comfort zone. This has been one of the factors which brought about a change of strategy and a move towards the globally diversified LifeStrategy 60 index fund.
Lets hope the markets can stabilise soon and we can all return to business as usual. For the time being I shall repeat my mantra…the markets always bounce back…eventually!
As ever, take it easy and, having recently experienced a short stay in hospital, remember, your real wealth is your health.