Investment results are heavily influenced by investor behaviour and a rational, calm investor is more likely to make sound calls. Pretty logical, right? Well, when the market goes into a downturn and your money is at risk, investors get afraid and all logic flies out the window.
During the 2008 crash, Shaunessy Investment Counsel (SIC) advised its clients to weather the storm and not sell. It was difficult to do – especially with all the alarming headlines in the news, creating fear and uncertainty.
From September 2008 to March 2009, we kept in constant contact with our clients to reassure them that much of the negative news coming from the media wasn’t as alarming as it seemed. The crash frightened many investors and prompted their advisors to make poor, reactionary decisions.
As portfolio mangers for over 40 years, we’ve learned it takes nerves of steel to keep calm and stay the course, but steady investors reap the benefits.
Here are our 4 tips for keeping calm during market corrections:
- Be in it for the long term
The best way to build your wealth is to embrace the long-term investing mindset. When this becomes your focus, you’ll not be rattled by short-term market fluctuations. Investors so often hurt themselves because the behaviours provoked by a short-term focus are almost always irrational. No matter how hard they fall, the markets always come back. Stick it out for the long term to see returns.
- Boom or bust, rebalancing once a year on your birthday – simple as that
Remember investment results are more dependent on investor behaviour than on asset class or fund’s performance. For the do-it-yourself investor rebalancing once a year on your birthday is a simple way to exercise that discipline. Better still – a SIC Global Multi-asset Portfolio
- Keep it simple
You don’t need to regularly add new asset classes or investments. Instead, work to manage a simpler portfolio, more efficiently balanced for risk and return. A SIC Global Multi-asset Portfolio is all you need to access a selection of positions representing all asset classes and thousands of underlying securities with a global perspective in developed markets.
- Give it 5 to 10 years
It’s extremely easy to advise others to take their time and avoid irrational behaviour with respect to their portfolios. Putting it into practice in times of stress is entirely different. Ideally, you need a five-year time horizon, but 10 is better.