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What investors should consider during market corrections
As sharemarkets continue to see double-digit corrections around the world, stressed-out investors are told to look beyond the headline and consider the implication for their personal portfolio, according to an industry expert.
What investors should consider during market corrections
As sharemarkets continue to see double-digit corrections around the world, stressed-out investors are told to look beyond the headline and consider the implication for their personal portfolio, according to an industry expert.
According to AMP Capital chief economist Dr Shane Oliver, corrections in markets are healthy and normal.
“Related to this, shares climb a wall of worry over many years with numerous events dragging them down periodically, but with the long-term trend ultimately up and providing higher returns than other more stable assets. Bouts of volatility are the price we pay for the higher longer-term returns from shares,” Dr Oliver said.
AMP’s economist also highlighted to investors that while their money may theoretically have fallen, if they do not sell they have not lost anything.
“Selling shares or switching to a more conservative investment strategy or superannuation option after a major fall just locks in a loss. With all the talk of billions being wiped off the sharemarket, it may be tempting to sell,” Dr Oliver highlighted.
Dr Oliver also pointed out that investors who are relying on dividends should have less implications, as price falls shouldn’t affect income in the short term.
“While shares have fallen, dividends from the market haven’t. They will come under some pressure as the economy and profits take a hit from a deeper and longer coronavirus outbreak. But companies like to smooth their dividends over time — they never go up as much as earnings in the good times and so rarely fall as much in the bad times,” Dr Oliver continued.
Finally, the economist explained market recoveries are usually sharp if the economy is not in a recession.
“After the low, the sharemarkets generally rebound sharply, which invariably makes it very hard for investors to time, as by the time they realise what has happened and get back in, the market is above where they sold,” Dr Oliver concluded.
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