If the last decade of investing has taught us anything it’s that the share market can be a very volatile place. We’ve seen records broken, both good and bad, and often those record bad days were followed by the record good day. With so much volatility out there the media has a field day with headlines like “$60 billion gone in horror day” and most commentators are suggesting this volatility is here to stay for some time yet.
So what do we do? How do we respond to the volatility?
Option A: The run and hide.
A fairly straight forward option, it involves taking all of your money out of the market and parking it in cash. Cash will at least get you a return of 2% a year and you won’t lose any money. You tell yourself that you’ll only be out of the market for a little while and then when you feel confident you’ll be back in for the good times. The problem is that the market often has false starts. When the market bottomed out after the GFC, there still many bad days in amongst the good ones and most people were reluctant to invest until they saw consist good days. By the time the consistent good days came, the market was nowhere near the bottom anymore.
Option B: The head in the sand.
Pretend like nothing’s happening. Don’t read the news. Don’t watch the 6pm reports. Don’t listen to the backyard conversations. Just pretend it’s all happy days and there’s neither good nor bad happening out there. The problem here is that you can’t really escape the media attention or the conversations and most people only hear the snippets of bad news and freak out. By the time you pay attention to what’s going on, you might not like what you see and it’s too late to do anything about it.
Option C: The follow the leader.
When it comes to investing the overall goal is to have more money at the end than you did at the start (ground-breaking idea I know). So who are the leaders in this field? Who are the people making the most money out of their investments and what are they doing? What are Gina Rinehart, Andrew Forrest, Frank Lowy and James Packer doing? They’re actually looking for opportunities to invest. They’re not asking the question ‘what are the markets doing today?’ they’re asking themselves ‘what will markets be doing in a decade?’ and starting to move in that direction now. James Packer is looking at more casinos, reports say he’s looking at spending over $10b in the next 5-10 years. Andrew Forrest purchased Harvey Beef last year and has invested large amounts of money into Atlas Iron and Impact Minerals this year. Gina Rinehart is investing big into the dairy industry and Frank Lowy continues building his property empire. If the richest of the rich think it’s worth having their money in the market, continuing to invest what they have while looking to take steps forward, then I think we can learn from them.
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