5 Principles to Consider:
It is important to remember that market volatility is normal and you should not be deterred from your long-term investment strategy.
These are the number of principles you should consider before deciding to switch or sell your investments:
1. Remember your investment timeframe. You need to strike a balance between the level of risk you are prepared to accept and your desired level of return. Your attitude to risk will determine which funds suit you, as will your objectives and the timeframe you intend to invest.
2. Withdrawing after a negative return may cause you to realise a loss. When you withdraw your investment the loss is realised. Transferring the funds to a cash-type investment may look attractive today but, historically, investors who have held their investment during periods of market volatility have tended to perform better than those who withdrew their funds to invest in cash.
3. Consider the power of compounding. Your investment grows by generating earnings on earlier earnings, known as compounding. By starting investing early, adding to your investment regularly and holding it over time, you maximise your opportunity for compound returns. If you sell or switch your investments, you'll loose the effect of compounding and may lock in losses.
4. "Time in" the market, not "timing" the market. Some investors confuse these principles by trying to pick the highs and lows, or when to get in and out. For many investors, trying to time the market actually results in lower long-term returns. Shares, like other growth assets, tend to provide you with a bumpy ride, but the potential rewards of sticking to your long-term investment strategy can be significantly higher than sticking with cash.
5. Market volatility is normal. Investment markets rise and fall over time. As a general rule, the greater the expected returns, the higher the risk of a negative return. Historically, diversified portfolios invested in shares, fixed interest securities, property and cash are likely to have a negative return once every five years or so, however past performance is not an indicator of future performance.
