Stay calm and HODL – top tips for investors in the current market

HODL is a term that is often used in investing.  It means Hold On For Dear Life.  HODLers are people who invest and tend to hold on to those investments over a longer period of time, riding the ups and downs while the value of their investments slowly grind upwards.

With the upcoming US election getting closer and world events becoming more concerning by the day, it is understandable that people are starting to feel uncomfortable about their superannuation and investments.

According to Alex Jamieson, Australia's leading financial advisor and founder of AJ Financial Planning, despite the economic climate and level of international conflict, the world liquidity cycle is fairly predictable.  While it may not be identical for each cycle, it tends to rhyme.

How are people feeling

“A lot of people are feeling somewhat concerned about the state of world affairs and the health of the Australian economy and this is causing some anxiety among investors,” Jamieson said.

“As someone who is deeply involved in working with the markets, I encourage people to zoom out and look at the bigger picture and historical trends.  This provides people with a bigger perspective on how things are tracking and provides a level of comfort.”

Volatile markets

“The markets are really volatile at the moment and people are worried about what might be next.  This is completely understandable,” Jamieson said.

Jamieson explains that on average, we normally see a pattern of market dips each year.  These include:

·       About seven drops in the market that work out to be a dip of around 3 percent or so,

·       About three drops in the market that work out to be a dip of around 5 percent or so; and

·       About one drop in the market that works out to be a dip of around 10 percent or so.

“These moves are all pretty normal in an average year in the market and when you see the 10 percent drop or more you really want to be ready to take advantage of this when it turns up.

“I suppose the key takeaway here is that while many people panic, HODLers and those who have zoomed out and have a more long term understanding of the market, tend to see the dips as buying opportunities, rather than reasons to be alarmed.”

What type of shares are more volatile than others

“The share market is full of different types of businesses.   High beta shares, such as technology and consumer discretionary shares, typically are more volatile and dip further on market downturns.  Examples of this could be XRO or NVDA,” Jamieson said.

“Low beta shares such as utilities, health and consumer staples tend to not dip as much.  Examples of these could be WOW or COST.”

When is a good time to buy

“On average, the share market takes a breather between June and October each year, and the largest dips have occurred during this period. Interest rate changes or economic news can also move markets around.  The old saying sell in May and go away has come about picking up on this historical trend in the market.  This is largely centred around the US earning season that often powers the market forward.

“Volatility is part of investing.  The key is to ensure you are working with a good advisor who can assist you develop up a plan that suits your circumstances and your risk tolerance levels. As far as I am concerned, while we are seeing some volatility, the market is behaving as expected.”