As investors grapple with uncertainty, staying calm and focused has never been more important.
“Time in the market, not timing the market” is a popular investment philosophy that emphasises the importance of staying invested over the long term rather than trying to predict short-term market movements. While markets can be volatile in the short term, history shows they tend to grow over time.
It’s a strategy that helps you avoid getting caught up in short-term market fluctuations or trying to predict where the market is heading.
Despite the recent market turbulence, driven by factors like global effects from the US administration and ongoing conflicts in Ukraine and the Middle East, savvy investors choose to focus on strategies that encourage long-term stability and growth.
This mindset echoes the philosophy of high-profile investor, Warren Buffet, who argues that short-term volatility is just background noise in the grand scheme of long-term success.
“I know what markets are going to do over a long period of time, they’re going to go up,” says Buffet.
“But in terms of what’s going to happen in a day or a week or a month, or even a year . . . I’ve never felt it was important,” he says.
Buffet first invested in the share market when he was 11 years old. It was April 1942, just four months after the devastating attack on Pearl Harbour that caused panic on Wall Street. But he wasn’t fazed by the uncertain times.
That seems to have worked for him, as today Buffet is worth an estimated US$147 billion.
Long-term growth in Australia
Whilst the US has seen strong growth, Australian investors have also done well over the long-term. For example, if you had invested $10,000 in a portfolio tracking the All Ordinaries Index 30 years ago (with dividends reinvested), that investment would be worth more than $135,000 today.
And it’s not just the All Ords. If that $10,000 investment was instead made in Australian listed property, it would be worth almost $95,000 today – similarly in bonds, it would be worth almost $52,000.
Meanwhile, cash may well be a safe haven and great for quick access but it is not going to significantly boost wealth. For example, $10,000 invested in cash 30 years ago would be worth just $34,000 today.
Diversify to manage risk
Diversifying your investment portfolio is a great way to manage the risks of market fluctuations. When one investment sector or group of sectors is struggling, other markets might be thriving, helping to smooth out your portfolio return. This approach reduces the risk of a slump in one area affecting your entire portfolio.
For example, the Australian listed property sector was the best performer in 2024, adding 24.6 per cent for the year. But just two years earlier, it was the worst performer, losing 12.3 per cent.
Short-term investments such as government bonds, high-interest savings accounts and term deposits can play an important role in diversifying the risks and gains in an investment portfolio. These are great for adding stability and liquidity to a portfolio.
Ongoing investment strategies
Building wealth over the long term is an active approach. By staying invested, you give your investments the best chance to grow, avoiding the risks of missing out on key growth periods by trying to perfectly time your buys and sells.
Regularly reviewing your investments helps you to stay on top of any emerging economic and political trends that could affect your portfolio. While it’s important to stay informed about market trends, it is equally important not to overreact when there is short-term share market volatility.
Emotional investing can lead to poor decisions, so remember the goal is not to avoid market declines but to remain focused on your overall long-term investment strategy.
Next steps
If you would like some assistance in reviewing your investment strategy, contact our team at Nexia Australia.
