When you’re investing, a decrease in the value of your portfolio is scary—especially because it might be accompanied by alarming headlines and doomsday predictions in the media. You might worry if you made the right decision, or consider selling all or part of your portfolio.
Our advice: the best course of action is to stay calm and hold on to your investments.
When we built and recommended your portfolio, we knew there would be bad days. Your portfolio has been built to adjust to changing market conditions.
A few things to keep in mind:
a) Volatility is a normal part of sharemarket investing.
b) Sharemarkets have historically delivered higher long-term returns than cash because their short-term returns are so unpredictable.
c) Over the past century, there have been some scary dips, but the market has always recovered and risen to new highs.
d) In order to make money from your investments, you need to hold through times of increased volatility.
When you invest, you get compensated for bearing risk. If share returns were predictable they wouldn’t be risky, and if they weren’t risky there would be no reason why they should generate a higher long-term rate of return than safer investments like cash.
Remember, if you’re invested with Clover, the sharemarket is only one component of your portfolio. Your shares are spread across not only the US and Australia, but also many sharemarkets throughout the world.
Depending on your portfolio you may also have exposure to Australian bonds, property and cash. These other components help to create the benefit of diversification, an investment approach that is at the core of all intelligent investing.
Plus, if you're regularly contributing to your Clover portfolio, the occasional sharemarket breather can actually be beneficial, allowing you to take advantage of dollar cost averaging, essentially ‘buying more for the same cost’.
You can’t control what markets will do from day to day, but you can control your actions and exhibit discipline in sticking to your investment strategy.
As Warren Buffett says, “We don’t have to be smarter than the rest. We have to be more disciplined than the rest”.