Gyrations in financial markets over recent weeks make it timely to reflect on what is driving recent market volatility, and to remind ourselves of some core investment principles for long-term investors.
Equity markets began selling off in late January after US job numbers were surprisingly positive. Why would markets sell off after apparent good news for the global economy? As it often does, it comes down to expectations. And in this case, expectations for the future path of US interest rates.
Equity markets like economic numbers to be just right. Strong employment readings raised the market's view on how quickly the Federal Reserve would increase interest rates. This news saw long-term bond yields rise. Long-term interest rates are a key input into investors' valuation and the subsequent volatility is then the result of different investors grappling with this new uncertainty.
As a result of this recent increase in stock market volatility, many investors may be concerned and wondering whether now is the time to rethink their portfolios. While we believe investors should always make sure their appetite for risk matches that of their investment portfolios, market movements alone are not a good reason to alter investment plans. We continue to believe investors are best served by holding diversified portfolios of high-quality liquid assets that are aligned to their risk appetites and investing time horizons.
Albert Einstein once remarked that 'compound interest is the eighth wonder of the world'. Starting to prepare for retirement early by setting a clear plan with clear objectives, and contributing frequently, we believe puts investors in the best place to achieve their long-run retirement objectives.
While this approach can be challenging to maintain during periods of extreme volatility, we believe such a disciplined approach is the safest path to achieving your financial goals. It keeps investment costs and taxes low while also making sure the portfolio is positioned to participate in the long-term rewards that markets tend to provide over time.
If you'd like to find out more about long-term investment strategies, please contact P&N Financial Planning on 13 25 77.
Any advice given is general only and does not take into account your personal objectives, financial situation or needs. Please therefore consider whether it is appropriate for you and consult your Financial Planner.
Police & Nurses Financial Planning Pty Ltd (P&N Financial Planning) ABN 21 009 245 194 AFSL 237507. P&N Financial Planning is a related entity of, but not guaranteed by, Police & Nurses Limited (P&N Bank) ABN 69 087 651 876 AFSL/Australian Credit Licence 240701. P&N Financial Planning is the provider of financial advice services.
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