Successful investing is as much about your head, as it is your heart. When markets get rocky, fear and uncertainty can take over, leading many to make hasty decisions that can have a significant impact on long-term wealth creation. It is precisely during these turbulent moments that maintaining a cool, clear approach is crucial for all investors.

First of all, it is important to accept that market ups and downs are a feature, not a bug. Historically, markets have experienced cycles of booms and busts. While positive share market performance is never guaranteed, the long-term trajectory of the stock market has generally been an upward one, despite these bouts of short-term instability. This historical context can provide perspective during those more challenging moments in our investment journey.

Understand your cognitive bias

A common pitfall during those tense market wobbles is the urge to sell off investments or even make significant changes to your investment strategy. This reaction is driven by a cognitive bias known as loss aversion, where the pain of losing money is significantly more intense than the pleasure of gaining an equivalent amount.

No one likes seeing their investments decrease in value. Watching them go down may cause many investors to sell off their positions to ‘stop the bleeding’. Selling may prevent the value of your investments from dropping further in the short term, but it can also lock in the losses and any opportunity to recover when markets start to rebound. It is important we remember to take a breath during those moments and not rush to make any big decisions.

Setting the right goals

Making sure your investment strategy is in line with your long-term financial goals is another way investors can mediate the shock of volatile conditions.

As investors, it is important to be realistic with your investment timeframes and attitude to risk, and clear on the reasons you are making the investment. Regularly reviewing your investment strategy, at least annually, is also a crucial step to investment success. Ask yourself questions such as: are my long-term objectives still the same? Has my attitude toward risk changed?

Self-assessment ensures your investments remain aligned with your goals and risk tolerance, helping you navigate market fluctuations with much greater confidence and clarity.

Short term stability

But what if you have some shorter term goals? Short-term investments can be a valuable addition to your overall investment strategy. Conservative investments generally have a lower allocation to share markets and a higher allocation to bonds and cash. Unlike long-term investments, which are aimed at achieving growth over several years or even decades, shorter-term investment options with a recommended timeframe of around 3-5 years are generally designed with a focus more on stability, with a potentially lower return given the lower level of risk taken on by the investor.

The idea of a stable investment option may seem attractive, but it's essential to remember that all investments carry a level of risk and conservative does not mean safe or fully secure.

Knowing the best way forward

Seeking professional advice can also provide better insights and reassurance when things get bumpy. Financial advisers can offer objective perspectives while also understanding your needs and goals, helping you navigate complex emotions and maintain a disciplined approach to your investing.

Financial advisers are there to help you at any stage of your investment journey and can be a great resource when facing the complex world of financial markets.

Successful investing requires a balanced approach that combines a rational strategy with emotional resilience. By staying calm during market downturns, aligning your investments with your long-term goals, and seeking professional guidance, you can weather the storms of market volatility and continue on the path to financial success.

Remember, it's not just about the head or the heart when it comes to investing, but finding the harmony between the two during those difficult moments.

Need some help?

If you’ve got any questions about your investment, our team are always happy to help. We can talk you through your investment timeframe and check your investment strategy is right for you. You can chat to us online, drop us an email or call us on 0508 347 437.