Seven habits of highly effective investors

by Russell Investments

If you’re feeling a little bombarded by news about the US and Australian elections, Brexit fallout, RBA interest rate cuts, anaemic global growth—you’re not alone. In a low-return, high-volatility world, many people are asking, ‘How can I protect my investments in this environment?’

Unless you’re a day-trader or speculator, watching the market fluctuate is no fun. It’s easy to panic in this situation, but there’s a skill to holding your nerve.

Make the mental adjustment

Scott Fletcher, Russell Investments’ Director of Client Investment Strategies, agrees. “The key to investing in a volatile environment is to change your mindset from impatient to patient. Don’t waste your money on constant tweaks to your investments, especially not your super. Accept that volatility is the new normal, and then understand how this can be used to your advantage rather than your detriment.”

Some people fall victim to a cycle of emotion in this kind of market, but in fact a volatile environment can hold potential for a significant wealth transfer from impatient to patient investors. This is where disciplined investing really pays off.

The steps to success

Here are seven ways we help make volatility work for you rather than against you:

1. Understand the lay of the land

Connect with your financial adviser to understand the key drivers of financial market movements and why things are happening the way they are.

2. Make the mental adjustment

If you make the mental adjustment to a lower return outlook, you won’t get nervous about your long-term strategic investment plan.

3. Diversify (intelligently)

No single strategy is perfect—when one aspect of the market goes up, another will come down. A diversified investment portfolio spread across multiple asset classes (e.g. shares and bonds), funds and investment managers can help smooth the ride for you.

4. Stick to the plan

Stay the course even when things get rough, remembering your long-term objectives rather than being concerned with short-term fluctuations. A volatile market can test your discipline and patience, but this is where savvy investors move to the front of the pack.

5. Be ready to act when the right opportunities arise

Professional portfolio managers typically do better than do-it-yourself investors when volatility picks up. Investment professionals can often take advantage of opportunities as soon as markets overshoot to the downside—so that your money never sleeps.

6. Remember asset allocation

In this kind of market, the same news can be good one day and bad the next. Knowing the potential for an overnight reversal of fortunes is high, many professional investment managers avoid large shifts to their portfolios’ strategic asset allocations, but allow some movement for tactical opportunities if they arise.

7. Select the stocks

Asset allocation aside, there are still plenty of opportunities for generating additional returns inside various asset classes. Some investment options have diversification across thousands of individual securities, weighted more heavily to those the professionals expect to perform strongly.

It’s all about the big picture

Remember that most sensible of financial proverbs: investing is a marathon, not a sprint. Your aim is to make money over the long term, not overnight. Every bit counts in this kind of environment—if you change your investment strategy too often, you’ll just churn up costs and run the risk of missing opportunities when they do come. Your adviser can work with you to develop or fine-tune your strategy to keep the big picture in mind.

This article was written by Russell Investments and published in its Investor newsletter in September 2016. Russell Investments has given permission to Sentry Group to publish it. Copyright 2016. Russell Investments. All rights reserved. This material is proprietary and may not be reproduced, transferred or distributed in any form without prior written permission from Russell Investments.

General Advice Disclaimer

This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or Sentry Advice Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.

Paradigm Strategic Planning Pty Ltd is an Authorised Representative of Sentry Advice Pty Ltd AFSL 227748

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