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Please Don't Panic!

linedownIt's 25 August 2015 and there have been some quite big declines in the worlds sharemarkets over the last few days.  Some people are getting a litte anxious, some have already started to panic - please don't.

Really what's new?

  • Growth in China was never going to continue at 8% per annum forever,
  • the Greek "crisis" has been brewing for decades, perhaps centuries, (they invented Democracy then went on holiday)
  • there's always a war on somewhere,
  • terrorism certainly isn't new,
  • milk prices couldn't continue to set new records every auction.

But for reasons unknown a whole lot of factors have merged to create a wave of share market selling.

It is entirely possible that the sharemarket may fall significantly further over the coming days, weeks or months. It's also possible that it will recover it's recent losses in a day or two and head on up to new highs, or it may not recover for years. Really it's just like last week, last month, last year. We may be on the edge of the precipice we might be at the bottom of the hill, we might be half way up, or down, we wont know till we look back.

If you are thinking of selling shares because you are worried they might go down further in value consider what alternative use you have for the money. In particular if you are currently relying on your shares for income remember a falling share price doesn't correspond to a fall in dividend income. If you sell and put the money in the bank it is likely your income will fall substantially.

Heres a few other things to consider.

  1. It is likely the media will have a field day with the recent losses, and perhaps drag out "experts" who'll showcase predictions of much more dire things to come. The media is all about getting you to tune in, not to help you with investment decisions. When things are good they highlight how great things are, and when things turn south they jump on the bandwagon and act like there won’t be a tomorrow. Best to tune them out.
  2. We are probably way overdue for a correction. Over the past 6 years there has been much less volatility in the markets than there usually is. We have become a bit desensitized to how stock markets actually move. Losing 10% – 20% over a period of months is not unique. Markets go up and down. Every time something different causes it – and instills a lot of fear. This time and times in the future will be no different.
  3. If you have at least seven years until you plan to fully cash out of your account, then you have nothing to worry about. Even if we were to get a protracted downturn, it wouldn’t matter for long-term investors, in fact it can benefit you.
  4. If the markets go down significantly more, consider taking advantage of the weakness and buy high quality stocks “on sale”. It’s not easy to buy stocks after seeing them go down, but it can really help your returns over time. A 5% loss may not be sufficient to do this. But if there's a 15% – 20% loss maybe consider getting in and putting some money some work.
  5. Diversified portfolios, which you definitely should have, ensure that your total portfolio doesn’t move in line with the share market. You don’t go up as much as the market, but you also don’t go down as much. And by having assets that do well in tough times such as bonds, we have the ability to actually purchase stocks on sale – to take advantage of temporary losses for your long term gain. The key is to think long term (seven years or more) and ignore the short term stuff.

That being said if you are going to sell shares by all means give us a call at Bay Financial Partners on 07 578 3863 we will be happy to help.

Remember if you don't already have an account open it will take a few days to set up. Open a broking account now so you're ready to get some bargains if share prices do continue to fall!

  • Last updated on .