Beginner’s guide to market volatility

If you’re contemplating dabbling in the stock market, or you already do so, market volatility can have a big impact not only on your shares’ performance, but also your superannuation and other investments.

In order to protect your investments, it pays to understand the forces affecting global financial markets. To make that easy, we’ve set out below some of the key areas you need to know about to help you get your head around market volatility.

What influences global markets? There are many factors, including industrial, environmental economic, social and political issues, which can impact on markets. Consumer confidence can affect spending and reduce company profits and share prices; natural disasters can damage have significant economic impact; and political upheaval can cause destabilise the global economy if it causes debts to go unpaid. Look at what’s happened in Greece as an example.

Impact on super funds: Your super fund may grow less quickly – or even decline – at times of market volatility. But remember: markets move in cycles. What goes up must come down, and the reverse is usually true, too. The historical general trend of share markets has been upward.

How to manage volatility: There’s no foolproof plan, but if you have a diversified investment strategy you’ll eliminate some of the risk. Spreading your investments across a variety of asset classes, including domestic and global shares, property, fixed income and more. If the share market falls, your other asset classes can soften the impact.

Keep your eyes on the prize: Market volatility is likely to be temporary, so don’t lose focus on your long-term investment goals, both in shares and superannuation. It can be tempting to sell up when share prices fall, but if you take the long-term view the rewards are likely to be worth it.

Know your risks: All investments carry some risk. That’s why it really pays to speak to a qualified financial planner before you dive in to the share market.

Sydney Accounting can help you there. We’re the Sydney accountant you can rely on for sound advice, tailored to your personal circumstances and financial position. Call us today on (02) 9904 5004 to discuss your needs.