Brendan Bate: How to keep calm and carry on through a crisis . . . and take the emotion out of investing
How did you survive the share market Armageddon of recent months? Weeks of occasional furtive glances at your superannuation balance and your share portfolio, or long bouts of denial?
Let’s face it, investing can be stressful, which is no real surprise given it is a very psychological process.
There is no doubt that in volatile markets we feel the impact of a loss much more than a gain. Our hearts sink at the breakfast table when we read headlines about “Billions wiped off market” or “Recession risk in Trump tariff war”.
Ingrained in our psyche is the fight or flight response. When it comes to investing in these circumstances, I favour the fight.
Don’t get me wrong, predicting the market can be difficult: it is a rollercoaster. But as advisers we have to keep you on that rollercoaster because time in the market is far more important than trying to time the market.
If you need a comparison, think of our superannuation system and the magic of compound returns over long periods of time.
Assuming you invested $10,000 into our ASX All Ordinaries index 30 years ago and did nothing other than reinvest the dividends, it would now be worth more than $135,000 — and that is without adding anything more to the investment in that time.
Although past performance can’t be used to guess the future, gradually adding more to an investment is a philosophy that can be applied to help give you discipline and dial down any trepidation.
For example, work out how much free cash flow you have (yes, I know the cost-of-living crisis can be scary in itself so, as always, live within your means) and consider whether you have spare funds available that could be regularly and strategically drip-fed into the market through buying less units when it’s running hot and more when it’s closer to the bottom.
That is a strategy that can help take emotion away from the highs and lows of the market.
When it comes to reading the markets it’s a given they don’t like uncertainty, and we have had lashings of that lately — whether it be Donald Trump’s return to the White House and accompanying policy shenanigans, such as tariff wars, or our own political brouhahas.
But think about the last 30 years, we have seen devastating terrorist attacks, wars and sustained conflicts, the global financial crisis and the COVID-19 pandemic. Throughout it all, the markets have still been able to climb the wall of worry.
You don’t need some superpower to be successful at investing, just play the long game and have a robust, well thought-out strategy.
It’s also important to remember there is always going to be “noise” that will give you investment palpitations. But despite the rise and fall, you are investing in the businesses — not the governments.
Be alert, but try not to be too alarmed.
Brendan Bate is a financial adviser with the HLB Mann Judd Wealth Management team in Perth.
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