For over a decade we had one of the longest bull runs in history with relatively low volatility levels in Financial markets, that all changed dramatically in 2020 however.
This year thanks to the Global Pandemic, Brexit and the US Presidential Election we have seen a spike in volatility again. However, because we are also experiencing negative interest rates for the first time in living memory many people who were previously quite happy to leave their money on Deposit are now looking to Investment markets to achieve a better return.
If you are one of the many Irish people who make up the over €100 billion now on Deposit in Irish Banks what factors should you take into consideration before making any Investment decisions. Before embarking on an investment decision, it is vital to identify what you are trying to achieve. Having objectives will give you the confidence and discipline to manage your emotions at times of uncertainty.
Below I have included some points which should be taken into account when considering an Investment.
Don't try to time the markets
It’s foolish to think you can try and outsmart the market by waiting for an inevitable correction, buying at the very bottom and selling at the very top of a cycle. What's much more important is the length of time you remain Invested, its “time in, not timing” that really matters.
Understand your Risk Profile
A good financial adviser will always ask you to complete a risk assessment questionnaire in advance of any investment. It should be noted that the resultant “risk score” is only a guide, you also need to consider your “capacity for loss” and time horizon which will also have a bearing on your overall risk profile.
Drip feed your investment into the market
An investment strategy which might be suitable for anxious clients would be to drip-feed their investments in to the market. This strategy known as Euro cost averaging involves contributing into a particular investment at regular intervals over a period of time, more shares are purchased when prices are low, and fewer shares are purchased when prices are high. The cost per share over time eventually averages out. This reduces the risk of investing a large amount in a single investment at the wrong time.
Diversification is one of the cornerstones of successful long term investing, By ensuring your portfolio is well diversified, you will be able to smooth out your investment returns in most market conditions. When markets are volatile, you never know what asset will go up in value and what asset will go down in value, however over the long-term, a well-diversified portfolio should increase in value and provide you with the returns commensurate with your chosen risk portfolio.
When investing, there are a number of different asset classes that you can consider, such as property, cash, commodities, equities and bonds etc. By diversifying and investing in more than one asset, your portfolio's overall investment returns should have a smoother, more consistent journey
Remember to Rebalance
Once your investment is up and running be sure to put in place a well-structured rebalancing system. This means that when certain asset classes do well, such as Equities, some of the profit is taken off the table to buy assets that are performing poorly. The best time to invest in the markets is when you have the money, while the best time to take your money out is when you need it. The longer the time period between these two, the better.
Stick to the plan
Try to filter out the “short term noise”, nowadays there is a constant stream of Information through online platforms, social media, traditional media etc this can sometimes be over whelming for investors forcing them to make reactive, short term decisions.
Do not let this short term news influence your long term goals.
Most importantly, always seek independent financial advice before making any significant Investment decision.
Barry Kerr BBS QFA CFP® is the MD of Wealthwise Financial Planning with offices in Leitrim & Galway, www.wealthwise.ie. Wealthwise Financial Ltd T/A Wealthwise Financial Planning is Regulated by the central Bank of Ireland. All details and views contained within this article are for informational purposes only and does not constitute advice. Wealthwise Financial Planning makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use.