If you’re feeling concerned about the economic turmoil being reported globally, you’re not alone.
Many are saying how uncertain the world feels right now, more uncertain than ever before, in fact. And yet, despite that feeling, uncertainty, and our ability to recover from it, has always been a constant.
The fact that it is to be expected, however, might do little to calm your nerves as you watch your portfolio value decline. It is these nerves that might cause you to make rash and regrettable financial decisions in an attempt to regain some control over the situation.
So how can you manage your emotions and your portfolio in order to weather the storm and come out the other side?
Focus on the long term
The reason things feel more uncertain than ever today is simply because we are still in the thick of it. Unfortunately, hindsight is the only way to know how financial events will play out.
Regardless of how long the current economic downturn lasts, the fact is that market volatility is nothing new.
Think of the fears of the millennium bug, the 2008 financial crisis, and the almost simultaneous occurrences of the Brexit vote and Donald Trump’s presidential election; each event caused panic and fear for investors, but the market recovered from all of them sooner or later.
By focusing on the long term instead of temporary blips, you can start to tune out the noise of daily fluctuations and sensationalist headlines in the media. As a result, you will be able to make much more sound financial decisions that will benefit you in the long term.
Remember that cash has its own risks
One of the knee-jerk reactions you may be tempted by is to exit the stock market altogether and move your money into cash. Cash is often perceived as more stable since it is very unlikely to lose value sitting in a DBS or HSBC cash savings account.
By doing this, though, you lose out twice.
Firstly, because removing your money from the stock market during a downturn will cause you to lose out on the opportunity to generate returns once conditions start to improve.
Secondly, despite not necessarily losing value like a stock market investment can, cash savings can lose real buying power over time.
According to SingStat, inflation in Singapore reached 7.5% in August 2022, however Moneysmart reports that the highest interest rate on a savings account in Singapore on 3 October 2022 is 4.8%.
So, while your own personal circumstances could mean that moving your money from the stock market into cash savings is a good idea, the chances are that for the majority of investors, holding firm with your strategy is likely to generate the best returns for you in the long run.
Look for the opportunities
Warren Buffett, one of the world’s most successful investors, famously said “Be fearful when others are greedy, and greedy when others are fearful”.
In other words, it’s possible to view this downturn as an opportunity. By remaining cautiously optimistic and investing as prices drop, you could see significant returns when markets recover.
It’s important to keep in mind that it is impossible to know when the downturn will end and prices will start to rise, and that past performance is not a reliable indicator of future performance.
But if you can make this small change to your mindset when everyone around you is losing their heads, it could have long-lasting positive effects on your emotional state and your investment portfolio.
Get in touch
If you’re concerned about the current economic downturn and would like to discuss how you should move forward with your investments, we are here to help.
Either contact your financial planner directly, email us at hello@ascentawealth.com or fill in our online contact form to organise a meeting and we’ll get in touch.
