11 October 2018 (Forbes) - “Market Volatility is Surging”
25 October 2018 (The Guardian) - “Asia Pacific Shares Plunge Into Bear Territory Amid Fears Over Global Economy”
27 November 2018 (Business Insider Australia) - “The Australian Dollar Is Volatile as Speculation Over Trade Negotiations Continues to Shift”
With headlines like these, you might feel nervous about investing your hard-earned money into the markets. When you regularly invest in the markets, however, you see how it’s possible to invest with confidence, even when volatility is the order of the day.
A look at today’s markets will show you what kind of ups and downs investors are dealing with. But before we look at a review of current volatility, it’s helpful to take a step back and look at the big picture. While day-to-day market swings can seem out-of-control and precarious, if you look at the markets over a longer period of time, you’ll see definite upward trends. Without all the daily and weekly peaks and valleys, long-term market views appear to be predictable and relatively peaceful.
With that perspective, let’s return to today’s volatility and the causes of current ups and downs.
Sydney’s property market just experienced its 12 straight month of declines, and price drops in Melbourne continued to accelerate as well. After the dizzying run-up in housing prices in recent years, the declines are causing concern.
But then again, weren’t we just complaining about housing becoming too expensive? When you step back and look at the long-term market, you’ll see that although there are blips here and there, particularly in the 1890s and 1930s, the overall picture is one of steady gains. In fact, property prices rebounded after every market downturn in the past. In many cases, the rebounds were significant.
Wise investors use downturns to invest while prices are low. If you’ve been thinking about getting into real estate investing, wait for moments such as these for making your entry. You’ll lower your overall risk and be able to buy more for less money.
Trade disputes around the world are disrupting supply chains and causing global market volatility. For example, the world’s two largest economies, China and the U.S., have increased tariffs on goods sold between their countries, and China’s growth forecast has been downgraded as a result. Monetary policy has been tightening amidst the uncertainty in many countries, and interest rates may rise in the coming months.
These kinds of trade disputes have happened in the past, and they’ll likely take place again in the future. In most parts of the world, financial underpinnings are strong enough to withstand resets in trade agreements from time to time.
The backlash against Facebook and their data privacy issues has been a contributing factor to the volatility in the tech market in recent days. That said, other tech giants such as Apple, Netflix, Amazon and Alphabet (Google parent company) have been rebounding. These kinds of highs and lows have been a hallmark of the tech market for the last couple of decades. While the tech sector is susceptible to volatility caused by changing consumer preferences, government regulations and even scandals, it continues to grow and outperform many other sectors.
Focusing too much on the day-to-day volatility of the markets can greatly affect your investment decisions. Instead of looking at the big picture, you can become too focused on how your stocks are closing at the end of each day.
Emotion-driven investors tend to sell at the bottom and buy at the top. Why? Because they get nervous and jump ship or buy at the wrong times. Not only is emotional investing counterproductive, but it can reinforce your fears (“See? I’m just not good at investing”).
Time and again, studies have shown that the most effective investment strategy is to buy and hold. When you buy stocks on a regular basis, you’re able to take advantage of the short-term fluctuations in the market and to ride out the highs and lows that inevitably come.
You don’t know what tomorrow will bring more than anyone else does. No one knows how geopolitical issues will affect the markets next year or next decade. We can’t predict which industries will boom twenty years from now or how the Australian dollar will fare against other currencies.
What we do know is that investors who set and maintain their investment strategy come out ahead in the end. Talk with one of our wealth advisers about setting your own long-term plan for building wealth over time. We look forward to talking with you.