2022 has been a volatile year for financial markets, with inflation at all-time highs and central banks around the world attempting to play catch-up via steep interest rate hikes. Global supply chain constraints, exacerbated by the war in Ukraine and lockdowns in China have led to fear of a potential recession.
Australian markets have performed better than global counterparts, yet unfortunately, nothing has been safe (except cash). Global markets are down 10-20 percent for the year, bond markets have crashed 10 percent and the ASX is down nearly 10 percent as well. Property prices have also begun to stagnate, especially in the capital cities as the rising cost of borrowing puts a stop to the post- covid property boom.
Investors need to realise that corrections are normal and are part of a healthy market. A steep pullback in the market may provide opportunities to buy good quality companies at a lower price. This makes it even more important to turn down the noise, remain disciplined and stick to a long-term investment strategy. The following quotes should be kept top of mind when investing during volatile market conditions.
1. “The stock market has predicted 9 of the past 5 recessions.” – Paul Samuelson
It does not mean much knowing or expecting an incoming recession as you will always be better off if you remain invested and more importantly, continue to invest during downturns.
2. “Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and mutual funds altogether.” – Peter Lynch
The only way to guarantee a loss is to sell during a correction and crystalising paper losses.
3. “In the short run, the market is a voting machine, but in the long run it is a weighing machine.” – Benjamin Graham
Markets are impossible to predict in the short term, however, quality companies will continue to perform in the long term.
4. “More money has been lost trying to anticipate and protect from corrections than actually in them.” – Peter Lynch
History has shown that corrections are nothing more than a temporary reset for the market if you remain invested.
5. “Be fearful when others are greedy and be greedy when others are fearful.” – Warren Buffett
The Oracle of Omaha (Warren Buffett) has outlined the importance of avoiding herd mentality. Do not buy during market peaks and add to your positions during steep downturns.
If you need assistance with your long-term investment plan, please reach out to your financial adviser.
Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.