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10 ways to avoid hasty market decisions

Fidelity Worldwide Investment  |  14 Jul 2015Text size  Decrease  Increase  |  

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This article was produced by Fidelity Worldwide Investment. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind.


1) Volatility is a normal part of long-term investing

From time to time, there will inevitably be volatility in stock markets as investors react to changes in economic, political and corporate environments. As an investor, your mind-set is critical.

When we are prepared at the outset for episodes of volatility on the investing journey, we are less likely to be surprised when they happen, and more likely to react rationally.

By having a mind-set that accepts that volatility is an integral part of investing, investors can prepare themselves to take a dispassionate view and remain focused on their long-term investment goals.

2) Over the long term, equity risk is usually rewarded

Equity investors are rewarded for the extra risk that they face by potentially achieving higher average returns over the longer term compared with, say, bond investors.

It is important to remember that risk is not the same as volatility. Asset prices fluctuate more than their intrinsic value as markets over or under-shoot, so investors can expect price movements to drive opportunity.

In the long term, stock prices are driven by corporate earnings and have generally outperformed other types of investment such as cash and bonds after allowing for inflation.

3) Market corrections can create attractive opportunities

Corrections are a normal part of bull markets -- it is normal to see more than one over the course of a bull market.

A stock-market correction can often be a good time to invest in equities as valuations generally become more attractive, giving you the potential to generate above-average returns when the market rebounds.

Some of the worst historical short-term stock-market losses were followed by rebounds and breaks to new highs.

4) Avoid stopping and starting investments

Investors who remain invested benefit from a long-term upward market trend. When you try to time the market and stop and start your investments, you run the risk of denting future returns by missing the best recovery days.

Missing out on just five of the best performance days in the market can have a significant impact on your longer-term returns.

5) The benefits of regular investing stack up

Irrespective of an investor's time horizon, it makes sense to regularly invest a certain amount of money, for example, each month or quarter. While it doesn't promise a profit or protect against a market downturn, it does help you avoid investing at a single point in time.

And although regular saving during a falling market may seem counter-intuitive to investors looking to limit their losses, it is precisely at this time when some of the best investments can be made, because asset prices are lower and will generally benefit from a market rebound.

You should always review your portfolio from time to time and amend it if needed.