Share markets have been especially volatile recently. If you’ve been feeling uneasy about what this means for your investments, rest assured you’re not alone. It’s natural to worry when markets fall, but it’s equally important to remember that short-term swings in share prices, even sharp ones, are normal and an expected part of investing. Over time, the market has always shown the capacity to recover and grow.

Some people find it so stressful watching their account balance fall that they move their money to a more conservative strategy, or even cash. 

However, the problem with making hasty decisions in choppy markets is that you can end up ‘locking in losses’ and missing out on potential future gains. This happened to many investors in the early days of covid – markets initially fell sharply before staging a long and strong recovery.

History shows that staying the course during market downturns is usually the best approach – as long as you are in the right fund for both your risk profile and investment horizon. More on that below!

Why have markets been falling?

Markets move up and down for many reasons – changes in interest rates, global conflicts, or slowing economic growth, for instance – but they famously hate uncertainty. Unfortunately, there is a lot of that around right now, particularly since US President Trump’s return to the White House and subsequent dramatic foreign and domestic policy announcements. His apparent commitment to making it harder for other countries to sell goods to the US has rattled global economies the most.

While events like these often make headlines and can make us jumpy, it’s important to remember that market corrections happen regularly. Historically, they’ve always rebounded over time.

Why you shouldn’t panic

It’s tempting to take action when you see your savings drop, but responding emotionally can lock in losses and hurt your long-term returns. Remind yourself that:

• Investing is a long-term game – While short-term market movements can be dramatic, over the long run stock markets have historically trended upward.
• Selling during a downturn can lock in losses – When markets fall, your losses are only on paper unless you sell. Moving to a more conservative fund or cash means you won’t benefit as much when markets recover.
• Missing the rebound can cost you – Some of the biggest market gains happen just after downturns. If you miss just a few of the best days, your long-term returns can suffer significantly.

A well-diversified investment strategy, which includes managed funds like those on offer through your workplace savings scheme, takes these ups and downs into account, helping you stay on track despite market fluctuations.

What you should do instead

Instead of making rash decisions, consider these five tips:

• Stick to your plan – If your investment strategy was right for you before the downturn, it’s likely still the right one now. Retirement savings are long-term investments, and your strategy shouldn’t change because of short-term market movements.
• Check your risk profile – If market drops are keeping you up at night, it could be worth reviewing your risk profile, which indicates how much risk you can afford to take based on your comfort with volatility and your investment timeframe (typically, the longer you have until retirement, the higher the risk you can take). However, any changes should be based on your long-term financial needs, not short-term fears. For more on this, click on the link to our previous article: How do you know you’re in the right investment fund?
• Keep contributing – If you’re regularly contributing to your savings plan, lower stock prices mean the same amount of money is now buying you more units in the fund. This is often called ‘dollar-cost averaging’, and it can help smooth out volatility over time.
• Don’t check your balance every day – While it’s important to keep an eye on your investments and make sure your strategy continues to reflect your needs and goals over time, checking it too often can lead to unnecessary stress. Try to focus on the bigger picture instead.
• Talk to a financial adviser - If you’re still concerned, consider speaking to an adviser before making any changes to your investment strategy. They can help you understand and manage your risk profile effectively. If you’d like us to connect you with an independent financial adviser for a free, no-obligation chat, click here for a contact form.

Remember, market fluctuations are a normal part of investing, and maintaining a long-term perspective is key to your success.

This article is for information purposes only and should not be considered financial advice.