Volatile markets present a great opportunity

Many media commentators are suggesting that the current volatile Australian sharemarket potentially presents a good opportunity to buy. But I think it actually presents a terrific opportunity to learn.

Most likely it is only people with an existing appetite for risk and confidence in their decisions that would be comfortable buying at volatile times like now.

So for everyone else it is a great opportunity to learn and to begin the journey of increasing your tolerance of risk. Emotions are one of the key drivers of risk tolerance. So right now and during volatile times do the following:

  1. Stop, take time and observe your thoughts and feelings about the current state of the market
  2. Write them down in your journal or diary, if you have one, or even in you investment file. (Date the entry.)
  3. Probe deeper by asking the wonderful question that children master: “Why?” For example, “what makes me feel or think that way?”, “What do I think may happen?” Keep drilling and obtain mastery of your thoughts.
  4. Seek resources that help you learn about the thoughts or fears you identified

The Financial Planning Association of Australia have just released this excellent resource to help you learn about risk: “The trade off – understanding investment risk.”

The graph on page 14 is particularly pertinent to anyone thinking they should be selling now. My question to those people is “if you do choose to sell now, what are the triggers that will make you buy again?” If you are serious about long term wealth creation you need to answer that question. The graph on page 14 shows the significant impact of missing the best month because you hesitated in being in the market.

If you are a long term investor turn off the news when the finance report starts. It’s just distracting noise.