Should investors panic when disaster strikes?
It appears that we are hearing or experiencing a disaster of some kind almost weekly at present. We have had the Australian floods, the Christchurch earthquake, the various North African uprisings and now the Japan earthquake and tsunami. No doubt, many investors will be asking themselves what they should do.
The answer is simple: stick to your long-term plan. For most investors, this will mean sitting tight and doing nothing.
In times of upheavals and uncertainty, there is always a temptation to do something hasty, but it should be resisted. Unless you actually need your money now, withdrawing is a kneejerk reaction, rather than a rational response.
Let's look at what's happening. There has been loss of life (which is absolutely tragic), there has been economic disruption and massive disruption of property. Oil prices have risen, currencies have become more volatile and share markets have reacted nervously and in many instances taken a tumble. The natural reaction is possibly to withdraw your money from various investments and head for the bank. However, this could potentially be the wrong move.
History shows there is every indication the markets will rebound – and even go on to reach new highs. However, by selling now, the most likely result is that you will take an immediate loss, at the same time creating buying opportunities for others.
Sharemarkets by their very nature are volatile, and they can and do react swiftly to events – but that doesn't mean investors should follow suit.
It's at times like this, investors need to keep their eyes firmly on their long-term strategies. As terrible as recent events were, retreating from the markets won't help anyone – yourself included.
While there is uncertainty and confusion in the financial markets, the best response for investors is to stay focused and ride out the volatility. If you are invested in good quality actively managed funds, then your fund manager is probably closely monitoring the situation and taking advantage of the opportunities that volatility creates. The manager will be looking at what stocks are likely to show significant growth as and when the rebuilding phase commences and will have made a decision to purchase these stocks at a discounted rate. As always, talk to your financial adviser for specific advice relating to your personal situation.
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