5 ways to keep a cool head in a falling share market

The share market correction many people have been talking about is causing concern for a number of investors.

However, head of Investment Strategy and Chief Economist Dr Shane Oliver assures us there is no need to stress and has given us 5 tips to keep a cool head!

  1. Selling shares or switching to a more conservative investment strategy or super option after a major fall just locks in a loss. With all the talk of billions of dollars being wiped off the share market, it may be tempting to sell, but this just turns a paper loss into a real loss with no hope of recovery. The best way to guard against making a decision to sell, on the basis of emotion after a sharp fall in markets, is to adopt a well thought out long-term investment strategy and stick to it.
  2. Shares have a tendency to literally climb a wall of worry over many years with numerous events dragging them down periodically, but with the long-term trend ultimately rising and providing higher returns than other more stable assets. Keep in mind, bouts of volatility are the price we pay for typically higher, longer-term returns from shares.
  3. When shares and growth assets fall they are cheaper and offer higher long-term return prospects. So, the key is to look for opportunities that the pullback provides.
  4. While shares may have fallen in value, the dividends from the market haven’t. So, the income flow you are receiving from a well-diversified portfolio of shares continues to remain attractive, particularly against bank deposits.
  5. The economic environment globally and in Australia is still quite stimulatory, meaning interest rates remain at historically low levels (for the time being at least) making debt relatively cheap, which encourages investment. Monetary conditions in the US might be tightening, but they are still what we would consider easy, and they are still very easy globally, with monetary tightening still a fair way off in Europe, Japan and Australia. We are a long way from the sort of monetary tightening that leads into recession.