Lesson 3: 'Time in' not 'timing'
Patience is its own reward. But patience also rewards investor. Most of long- term
gains on equity markets are made or lost in just a few trading days each year. Take away those 'big' returns are more like what you would expect from a defensive investment. Investors who lose patience and get out of the market run the risk of being absent when significant gains are made. Markets are unpredictable, so picking those 'big'. Staying invested means you capture the full benefits of the share market. Your returns might be down one month, but bywithdrawing from the market you run the risk of missing out on the recovery.Who should take advantage of shares?Generally investors with a long time horizon, who do not need to access their money for more than five years. can afford to take on more risk because they have more time to ride out the fluctuations on the market. However, if you intend to be in the market for less than five years, you might consider focusing on the less volatile asset classes such as cash and bonds.
Labels: equity, investment, investor, investors, markets, most long term, patience, returns, reward
LESSON 2: Diversification reduces risk
It is impossible to predict market movements accurately. Attempting to do so is little more than speculation.
However, you can reduce the impact of market movements by diversifying your portfolio. Adiversified portfolio is spread across a number of diffreent asset type. Diversifying prevents the value of your portfolio from being dependent on the performmance of a single asset type. A fall in the value of one investment may be offset by gains in the value of another.
Ways to diversifyManaged funds provide an easy route to diversification. Through a single managed fund it's possible to diversify across asset class, company, industry, sector, country and even fund manager.
Diversification means you don't need to pick the performers each yearIn 1999, at the peak of technology share boom, returns varied widely. Australian shares generated a return of over 15% -- particularly impressive when you consider that the gains came at end of a nine- year run which saw market surge 143%. In the stampede to invest in shares, the usual safe havens were overlooked. Bonds and property trusts delivered returns of only 3% each.
But the following year saw the beginning of tech crash. Investor sentiment had changed. Returns for Australian shares were down at the end of 1999 as investors bailed out of the property trusts 16% as investors sought a safe haven for thier investments.
Diversification reduces risk. Because it's impossible to predict market movement, one way to manage market risk is to maintain a diversified portfolio. Spreading your investment across a range of carefully diversified assets, will mininise the risk and smooth your returns. Your financial planner can help you learn about fund that will help to diversify your portfolio.
Labels: diversifying, funds, managed, markets, movement, predict, reduce
LESSON 1: Markets Move in Cycles
Investment markets move in cycles, and it is impossible to predict when a market will rise or fall.
However, by looking at the past we can observe how markets usually perform, and that can help us in the future to put market movements in perpective.
Markets always recover
One thing we know from looking at the long- term performance of share market is that, despite short - term volatility, markets always recovers. Even after the crash of 1929 the share market eventually recovered, although it did take more than 10 years. The good news is that since the 1960s, the recovery period has been shorter, typically less than five years. (Resources: FMUTM mazagine)
HOW TO BE A WINNER IN UNIT TRUST INVESTMENT
Investment markets move in cycles.... by looking at the past we can observe how markets usually perform...[this can] help us in the future to put market movement in perspective. Since 2000, investment markets have weathered a variety of conditions- from volatiliy to stability, then recovery and volaltility again. These changes have left many people wondering what the best way to approach their investments.
Don't PanicMany people may be tempted to move their money out of the share market during times of volatility or weakness. But it's important to remember that the markets move in cycles. Peaks and troughs are an intrinsic part of investing. While the cycles is unpredictable, history has shown us that recoveries always follow downturns, and vice versa. If you move out of the market, then you won't be there for recovery, which can sometimes arrive unexpectedly and take off quickly.
The 1990s provided a period of stability and sustainable growth for investors, yet by end of the decade, a series of events that were largely unpredictable had taken their toll on investment markets. The 'tech -crash', september 11, corporate corruption, the global economic slowdown, and the war in Iraq all contributed to volatile conditions in the markets.
From 2003 the global economy started its recovary and conditions stabilised, giving markets the opportunity to respond fovourably. At the beginning of 2007 the ASX was 83.1% higher than it was at its highest point in the 1990s.
By the middle of 2007 however, concerns over sub prime lending in the US had sent shock waves through stock markets across the world. The Australian share markets lost nearly 15% between the high reached in July and low reached in mid - August, but by the end of August had bounced back to pre July levels. Many commentators are calling that the period of volatility a 'market correction'.
Throughtout any market cycle, those people who hold their nerve, who remain focused on their long term goals and resist making snap decisions, are likely to be the winners.
