5 Things To Do In A Falling Market

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Below I have reproduced from the ASX a chart that shows the broad performance of the Australian stockmarket.  Here I have used the ASX 200 index (code XJO) for 10 years, measured monthly till 25 August 2015.

You can see that the market is now well off it’s peak in 2007 but still above the low in early 2009.  I am showing this chart to remind the reader to take a long term perspective when investing in share based investments.  So here are the 5 things you should do when experiencing a falling market, as we are right now:

1) Don’t Panic

The worst thing that you can do when the market is falling is sell you shares, or move your managed fund or super from, say a Balanced Portfolio, to cash.  This will lock in your loss and make a paper loss a real one.

2) Ignore The Media

I love news – watching it and reading about it.  But the media tends to exaggerate bad news and ignore good news.  That makes sense as it sells papers, increases viewers or clicks.  But it can lead to one making rash judgements.

3) Reduce Your Drawings

If you are drawing on an income stream or account based pension, reduce your drawing if you can.  Many clients build up cash holdings and can afford to cut back on the drawings from their riskier investments.

4) Consider Investing

Most people don’t do this.  But as Warren Buffett has said, ‘Be fearful when others are greedy and greedy when others are fearful’.  Market corrections can create good buying opportunities.

5) Review Your Risk Profile

If you really are finding this time uncomfortable, it may be time to sit with your adviser and review your risk profile.  Of course you may need to wait until the market had righted itself somewhat.  Certainly we have noticed that up until the GFC, new clients assessed mostly as Balanced investors (70% aggressive assets).  After the GFC, they assessed more as Conservative Growth (50% aggressive).  This has changed backed to the norm in the last year or so – we may well get a change now that a correction is on.

All this is General Advice only of course – your own situation is unique, so see a Certified Financial Planner TM about your own situation.

Australian Stockmarket 10 years

ASX 200 (Code XJO) ten year index 25 August 2015

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