Playing the ‘Scare Market’ – Investing in Turbulent Times

A volatile market doesn’t have to be bad news. With the right investing guide, getting the hang of shares, stock market investing and playing the ‘scare’ market can be profitable – and even fun!

Roller coasters are great. You pay your fare, strap on your seat belt and settle in for a wild ride – and that the end of the experience you’ve had a whole lot of thrills and excitement, and it’s only cost you a few bucks. The stock market gets compared to a roller coaster all the time, but there’s one crucial difference: roller coasters run on tracks, so you can see ahead of time where they go up and where they go down; stock markets don’t – so you can never be entirely sure whether tomorrow they’ll be climbing upward or taking a stomach-lurching plummet downward.

Over the last couple of weeks, the international markets have been incredibly volatile – and although we’re somewhat insulated here in Australia, we’re by no means immune to what’s happening in the global economy, as has been demonstrated by the sheer scale of the latest market slump. It’s easy (and tempting!) for investors to get caught up in the panic and dash to dump ‘devalued’ stock, but if you’re looking to make a profit in the long term, the best strategy might be to do the exact opposite.

Like a roller coaster, shares do two things – they go up and they go down. And while the share market doesn’t run on tracks, there are reasons why it has its ups and downs. And one of those reasons is investor confidence. When investors get scared and become caught up in a selling frenzy, the market gets oversupplied and prices take a tumble. But that doesn’t necessarily mean there’s anything wrong with the inherent value of some of these stocks.

If you can avoid the panic and keep a cool head, playing the ‘scare’ market can be the perfect time for savvy investors to bag a bargain – just make sure you get professional advice and base your decisions on the potential for future growth in the company you’re interested in investing in. As Warren Buffett says, when it comes to buying shares, ‘Price is what you pay, value is what you get’.

There are three major problems that prevent people from investing successfully:

1. Forgetting their investing strategy – if investing in a medium to long-term strategy the activity in the market on any given day shouldn’t be cause for overwhelming concern, unless they are at the end of their timeframe.

2. Overcomplicating things – the average investor doesn’t need to dabble in options, futures and hedges. Let the day traders get the grey hair stressing over complicated methods – stick to simple, proven investing strategies instead.

3. Buying high/selling low – this one’s pretty self-explanatory: selling for less than you bought something for is usually not a good idea (although there are certain circumstances when it is the best strategy).

So if those are the problems, what are the solutions? This quick investment guide should give you a head start in getting the most from the market in the long term.

Don’t put all your eggs in one basket

Putting everything you have into one investment is like betting on one horse in a race – it’s great if it wins, but if it doesn’t your ‘investment’ is gone. Diversifying your investment portfolio is a great way to reduce your overall risk and can increase your overall return – it’s a bit like spreading your bets across the whole field.

Understand your risk tolerance

Want to avoid feeling panicked every time share prices tumble? You may need to reduce your risk level. Understanding the level of risk you’re comfortable with will help you keep your investments and you’ll be able to sleep soundly at night too! Work with your financial adviser to create a ‘risk profile’ for you so you can ensure that the investments you make stay inside your risk tolerance.

Review, review, review

Investing is long-term, but it’s not ‘set and forget’. You need to monitor your shares, stock market activity and goals on a regular (but not necessarily daily!) basis to make sure they’re still doing what you want them to.

While you can’t necessarily predict the ups and downs of the stock market the way you can on a roller coaster, you do know that they’re going to happen. This is a great time to grab good quality blue-chip stocks for bargain basement prices – so when the share market starts to climb your investments should too. And unlike a ride on a roller coaster, the climb to the top on the market is the best bit for investors!

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