Four key strategies to navigate global market downturns
Successful investing happens over a long-term horizon, it’s as simple as that. Here are some proven strategies to help ensure we can remain calm and on track to achieve our investment goals in the long term – despite the natural anxiety periodic downturns in markets can bring up for all of us.
1. Long-term perspective, stay invested
When markets experience a downturn, it can be unsettling, especially with a media cycle that tends to focus on the short-term. It’s important to remember that markets generally recover quite quickly, and those who react to short-term changes by selling investments end up making their losses permanent and missing out on potential gains. Staying invested allows you to benefit from the market’s eventual recovery and the power of compounding growth.
For example, during the 2008 Global Financial Crisis, many investors who sold their stocks at the market's lowest points missed out on the significant gains that followed in the subsequent years. Markets performed similarly after other well-known crisis like the 1987 crash on Wall Street, the attacks on the World Trade Centre, and the most recent being the sell-off that occurred on the eve of the Covid pandemic. In every case, markets recovered and investors who stayed the course went on to enjoy gains over the long-term.
2. Diversify with a multi-asset portfolio
Diversification is an important investment approach that involves spreading investments across various types of assets like stocks, bonds, real estate, and commodities (like gold). This strategy helps in handling short-term falls in one asset class by reducing the impact of poor performance in any single type of investment. By focusing on a diversified ‘multi-asset’ portfolio, investors can benefit from more stable returns over time and better manage risk.
3. Rebalance to maintain a mix of investments
Rebalancing is the process of adjusting your investments to maintain the optimal mix that matches the level of risk you’re comfortable with. Over time, normal market movements can cause your portfolio to move away from its original balance. For instance, if stocks perform well, they may represent a larger portion of your portfolio than intended, increasing the level of investment risk.
Regularly rebalancing your portfolio ensures that you stick to your investment plan and maintain the appropriate level of risk. It involves selling assets that have done well and buying assets that haven't done well, which can also help you buy low and sell high (a good thing!). This consistent approach can improve your investments’ performance and keep you on course.
4. Reduce costs with ETFs and index-based investing
High investment costs erode returns over time. One proven and effective way to keep costs low is by using an index-based approach. Index funds and ETFs (Exchange-Traded Funds) typically have lower fees compared to funds managed by active managers that attempt to beat the market (but in most cases fall short). Investing using ETFs lets you enjoy the performance of the market without the impact of high fees.
Lower costs mean more of your money stays invested, which can significantly enhance your long-term returns. Additionally, index funds offer exposure to many underlying investments, reducing the risk associated with picking individual stocks.
Bringing it all together
While market ups and downs can be challenging, staying invested, well diversified, regularly rebalancing your portfolio, and keeping costs low are key practices to navigate periods of uncertainty in the markets. By focusing on these principles, you can build a resilient investment strategy that supports your long-term financial goals.
The good news is that you don’t need to do it alone. By working with your adviser and investing with an experienced and skilled professional multi-asset manager, the asset allocation and rebalancing can be looked after for you. You can rest easy and know that your portfolio is in good hands during any short-term downturns and remains focused on growth and prosperity over the long term.
Thanks to Briefcase’s innovative technology platform, advisers can design, manage, and implement index-based investing strategies efficiently and at low cost. Get in contact with us today to learn more.
Disclaimer: This material provides general information only and does not consider your individual objectives, financial situation, needs or circumstances. Before making any investment decision, you should assess whether the material is appropriate, having regard to individual objectives, financial situation, needs and circumstances. This material is not a financial product recommendation or an offer or solicitation with respect to the purchase or sale of any financial product in any jurisdiction. Any investment is subject to investment risk, including delays on the payment of withdrawal proceeds and the loss of income or the principal invested. While any forecasts, estimates and opinions in this material are made on a reasonable basis, actual future results and operations may differ materially from the forecasts, estimates and opinions set out in this material. No guarantee as to the repayment of capital or the performance of any product or rate of return referred to in this material is made by Briefcase.