Home Wealth Investment Why market volatility doesn’t matter

Why market volatility doesn’t matter

Volatility is a test that calm, long-term investors will pass with flying colours.

Neil Salkow

Director of Roskow Independent Advisory. Your Money contributor

(iStock.com/ivansmuk)

Editor’s note: The following article contains information only. It is not intended as personal or general advice.


Has anyone checked their portfolio lately, or heard about the volatility on the sharemarket on the news?

It’s likely down, maybe as much as 10 per cent over the month of October. Some seasoned investors will understand this is par for the course, while others may be feeling a bit more anxious.

Volatility is a test to all investors.

It reminds me of a story I heard last week about professional athletes competing at the Rowing World Championships. It’s not about getting the perfect stroke every time. It’s how they react under pressure that decides everything.

I saw footage of a rower making a basic mistake under pressure on the world stage and it cost the team the victory.

The difference with investment is we’re not under scrutiny from others, it’s worse: we’re under scrutiny from ourselves.

Here’s the thing, volatility is normal and completely expected.

For long-term investors, reacting emotionally to volatile markets may be more detrimental to portfolio performance than the draw-down itself.

We prepare our clients so that in times like this they are saying “so what?” They can say that because it was expected.

We know there will be returns that range year to year and it’s the long-term expected return that we want. In order to get that long-term expected return, you need to be in the market. You need to be in your seat.

Consider the expected monthly returns for Australian shares for available data going back to 1980 (38 years).

The highest monthly return was 17.43 per cent and lowest was a whopping -42.13 per cent.

At the time of writing, S&P/ASX 200 index was down 5.9 per cent since 1 October. Last month, it was -1.28 per cent. Next month, who knows? And your answer should be? So what!

A footy team with their eye on the premiership doesn’t expect to win every game. They have losses and stick to the plan, and overall they win.

A professional ballerina doesn’t get every step perfect, she has to hold herself and be composed in moments under pressure.

A professional rower doesn’t get every stroke perfect. It’s how they react under pressure that decides everything.

During times like this, it can feel like your investments are failing. They aren’t. Seek professional advice and trust in your financial plan, it’s likely been designed with a long-term focus.

Provided you are able to remain calm during periods of short-term uncertainty, you will reap the long-term benefits.

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