Investing in tough times: avoid these kneejerk reactions
These short-term responses may place your long-term returns at risk
In times of stress, the human impulse is to take action. When the economy and investment returns start to sink, this instinct could drive investors to do something – anything – just for the sake of taking action. This is precisely the wrong reaction in challenging times. There are many short-term kneejerk responses, all of which will ultimately detract from long-term investment returns: Cutting exposure to risk assets When the investment outlook and sentiment are poor, stressed investors often lose their tolerance for volatility. The local equity market has now delivered a paltry annual return of 3% over the past three years. Local savers are not accustomed to so many years of anaemic, low-volatility returns. As a result, it appears many investors are abandoning equities in favour of the yielding asset classes that have outperformed over this period. In contrast, fixed-rate bonds are overvalued, and select equities offer more value than at any other time in the past five years. It...
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