Don’t panic: Tips for navigating volatile markets
Knowledge is power, says BDO Partner, Private Wealth, Lachlan Kennett, who told Business Insight diversification and a cool head can help you weather the storm of market volatility.
With global markets rising and falling like a yo-yo recently, a certain element of panic hit the hearts of institutional and mum & dad investors alike.
But it pays to take a step back, relax, and make smart decisions even though the temptation of panicking based on daily news and market movements might seem like the right move at the time.
Speaking to InDaily, BDO Partner, Private Wealth, Lachlan Kennett, said big market falls demonstrated “the amount of fear” in the world economy.
“We have to understand that markets like certainty,” he said.
“They like knowing what is going to happen in the future, being able to forecast for revenues… but when we’ve got changing trade policies and the impact of that on economies we do see big fluctuations day-to-day in markets.”
Having seen the big swings of last week, Kennett emphasised that investors and superannuation fund holders should take the longer-term view.
“We need to understand what a long-term journey looks like,” Kennett said.
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“The more we try and time markets and worry about the day-to-day, the more uncertainty and fear creeps into decision making.
“Volatility isn’t necessarily nice to look at, but it’s not something that should be dictating longer-term investment plans.”
While younger Australians can afford to take a longer-term view of their investments and super portfolio, those approaching retirement might panic amid volatility.
Kennett said people drawing on their investments need to ensure their cash flow is secure and that they have a plan in place “to make sure that they can still go to the shops or go on holiday”.
“Taking the time to understand exactly what assets people have, how they’re invested, and the amount of volatility normally associated with that asset class. Then, understanding where your income will come from over the coming years if volatility does persist is the number one step that everyone relying on an investment account or a pension account should be doing,” he said.
Historically, we know that investment markets are hard to predict. Nobody knows over the short term exactly what is going to happen with investment markets.
“Given the recent falls, it can feel a bit like trying to catch a falling knife,” Kennett said.
While there’s never a bad time to begin planning, Kennett said, there’s one important tip to remember:
Stay informed, daily
“It’s really important that people don’t make rash decisions based on what they’re seeing in the news,” he said.
“Your average super fund will be diversifying their assets quite well for you into high-quality assets, bringing in a mix of more defensive assets alongside the share-based investments.
“You tend to have a little bit of a cushioning effect from the bonds and cash that is built into some of these assets.”
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