Market volatility is a natural part of the investment journey, but a well-planned approach can provide stability. This includes adopting long-term strategies, diversifying your portfolio to reduce risk, and using practical tools to manage uncertainty.
Market volatility can challenge even seasoned investors, but adopting long-term strategies like “time in the market, not timing the market” provides stability. Diversification reduces risks, while practical steps such as dollar-cost averaging and focusing on quality investments help manage uncertainty. Staying calm and consistent supports steady growth, even during the inevitable ups and downs of the market.
Here are key strategies to help you stay resilient during volatile markets:
Staying invested in volatile markets
Navigating uncertainty often boils down to one timeless principle – “time in the market, not timing the market.” This approach emphasises staying invested over the long term, rather than attempting to predict short-term fluctuations.
Historical data supports this philosophy. Over the past 30 years in Australia, $10,000 invested in the All-Ordinaries Index (with dividends reinvested) would have grown to over $135,000[i]. Despite numerous periods of volatility, the long-term trajectory of the share market has been upward. Trying to time the perfect moments to buy or sell often results in missing out on critical growth periods, particularly those that follow market downturns.
Famed investor Warren Buffett once said, “I’ve never felt it was important to know what the market is going to do in the next week, month, or year – because over time, I know it’s going to go up.”[ii] This wisdom holds true for Australian markets as well, where patience and persistence often reward investors.
Dividends, particularly from Australian shares, can also play a critical role. They provide a consistent income stream, and franking credits can offer additional tax advantages, making shares an appealing choice for long-term growth and income.
The power of diversification
One of the most effective strategies for weathering share market turbulence is diversification. By spreading your investments across various asset classes – such as shares, bonds, property, and cash – you reduce the risk of one sector’s downturn wiping out your entire portfolio[iii].
For example, in 2024, Australian listed property emerged as the top-performing sector, delivering a return of 24.6%[iv]. Conversely, just two years earlier, it was the poorest performer, having fallen by 12.3%. This highlights the importance of diversification – while one sector struggles, another may thrive.
Short-term assets, such as government bonds, term deposits, and high-interest savings accounts, also play a vital role in a well-balanced investment portfolio. These can provide stability and liquidity, offering peace of mind when markets become unpredictable.
Practical strategies for managing market volatility
While long-term planning is essential, navigating periods of market turbulence requires actionable short-term strategies. Here are some practical steps to manage your investments during uncertain times:
-
Review, don’t react
Market fluctuations often tempt investors to make impulsive decisions, such as selling off assets when prices drop. However, these emotional reactions can harm your portfolio. Instead, take the time to review your investment goals and asset allocation. Ask yourself whether your current strategy is aligned with your long-term objectives.
-
Dollar-cost averaging
Investing a fixed amount of money at regular intervals, regardless of market conditions, is known as dollar-cost averaging[v]. This approach can help smooth out the effects of market volatility by purchasing more shares when prices are low and fewer when prices are high. It’s a simple yet disciplined way to grow your wealth over time.
-
Focus on quality investments
During turbulent periods, high-quality assets tend to be more resilient. These may include blue-chip stocks, which are established companies with a track record of stable performance, or dividend-paying shares that provide a consistent income stream. Staying focused on quality allows you to ride out short-term volatility while positioning for steady growth.
-
Don’t underestimate cash flow and liquidity
While cash investments typically underperform shares over the long term, they are essential for ensuring liquidity during uncertain times. Keeping a portion of your portfolio in cash or other liquid assets means you won’t have to sell shares at a loss in case of emergencies.
-
Stick to your long-term plan
Always revisit your investment plan during volatile times. A well-laid financial strategy takes into account the inevitability of market ups and downs. Adjustments should be deliberate and based on changes in your life or financial goals, rather than short-term market noise.
Navigating the future
Global influences, such as geopolitical tensions or central bank policy shifts, will always inject a level of unpredictability into markets. However, Australia’s strong economic fundamentals and diverse industries provide a solid foundation for long-term growth. Whether it’s the continuing strength of mining exports, the appeal of Australian property investment, or the innovations in technology sectors, opportunities for wealth creation are abundant.
While market volatility can seem daunting, it’s essential to remember that it’s a natural part of investing. Being prepared, staying diversified, and maintaining a focus on long-term goals will allow you to weather the inevitable storms. When in doubt, seek advice from a financial adviser to help tailor a strategy that aligns with your objectives.
Investing isn’t about avoiding risk; it’s about managing it effectively to ensure your financial future stays on track, no matter the market conditions. With the right approach, turbulent times can become opportunities for growth and learning, setting you up for a stronger financial outlook.
If you would like more information on investing, or if you require assistance with other financial planning strategies, contact our office today.
DISCLAIMER: All information on Focus Wealth Advisers is general in nature and does not take into account your personal objectives, financial situation, or needs. You should consider your personal circumstances and seek professional advice before making any decisions based on this information.
[i] Vanguard (2024) The 2024 Vanguard Index Chart
[ii] Yahoo Finance (2021) 2021 Berkshire Hathaway Annual Shareholders Meeting
[iii] Moneysmart (n.d.) Diversification
