Financial Advisors & Planners Perth I Westmount Financial I Rick Maggi

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3 common investment mistakes...

Market downturns are incredibly common, but almost always unsettling, even for seasoned investors.

Over recent days, largely in response to growing fears that the United States is heading into a recession, share markets fell heavily but have since rebounded strongly.

As difficult is it can sometimes be to put into practice, a key lesson is that it doesn’t usually make good investment sense to react to day-to-day market movements. Rash decisions made in response to short-term events will almost always have a negative long-term consequence on your wealth.

Three mistakes to avoid…

1. Failing to have a plan

Investing without a plan is an error that invites other errors, such as chasing performance, market-timing, or reacting to market “noise.” Such temptations multiply during downturns, as investors looking to protect their portfolios seek quick fixes.

2. Obsessing over ‘losses’

Market downturns are normal, and most investors will endure many of them. Unless you sell, the number of shares you own won’t fall during a downturn. In fact, the number will grow if you reinvest your funds’ income and capital gains distributions. And any market recovery should revive your portfolio too.

3. Overreacting or missing an opportunity

In times of falling asset prices, some investors overreact by selling riskier assets and moving to government securities or cash equivalents. But it’s a mistake to sell risky assets amid market volatility in the belief that you’ll know when to move your money back to those assets.

While past returns are not an indicator of future performance, they do give a fairly good indication of the differences in returns between different types of assets.

Shares are renowned for being more volatile than other asset classes, however they have typically delivered the best returns over longer-term periods.

Share markets invariably recover their lost ground over time. So the best strategy is always to stay on your course, irrespective of sudden market jolts.

What's most important is to have a long-term investment strategy and diversified asset allocation plan, and to not to deviate from that plan, even when markets do fall sharply.

If you’re really not sure about what to do now, or your overall financial direction, you could consider consulting a financial adviser.

Rick Maggi