Feeling nervous about ASX shares? I wouldn't blame you.
The time we're now living in is one of the most uncertain periods we have ever seen in modern life. With social restrictions, economic shutdowns and a share market that has fluctuated in value by up to 40% in the last 2 months, it's a hard time to be living, let alone investing.
But I'm of the view that investing, no matter how certain or uncertain times may be, is always building your path to long-term wealth. Even if it might be 2 steps forward, 1 step back at times.
So here are some tips for reducing share market anxiety right now – a problem I'm sure more than one investor is battling through at the moment.
Look at history
The share market is a wealth-creation machine, and you only have to look back through history to see how true this is. The S&P/ASX 200 Index (ASX: XJO) was at its highest point in history back in February – and that history includes 2 World Wars, a Great Depression, a Global Financial Crisis, the Spanish Flu, and a few more wars thrown in.
Yes, there were big dips along the way, but the general trajectory has always been up. I remind myself of this by looking at a long-term graph whenever I'm feeling nervous about the markets.
Keep some cash on the side
Cash is the ultimate counter for volatility – and keeping some on the side in your portfolio can really help you sleep a little better at night.
Although cash is a lousy investment long term, in the short term it can help you preserve capital in a crash and take advantage of low share prices if the market does take another tumble in 2020. I think having between 10-30% of your portfolio in cash right now would be a prudent goal.
Diversify
Diversification is often thrown around as a buzzword these days, but not having all of your eggs in one basket remains a tried-and-true investing principle. So take a look at your portfolio and see how many holdings you might have that sell the same thing.
Having a portfolio with just the big 4 banks, for example, isn't diversified at all. Neither is having 5 'growth' tech stocks of which none are profitable.
A portfolio that covers multiple sections of the economy and the world is a great way to reduce risk in my view. Exchange-traded funds (ETFs) are a great tool to use for this purpose. And if you're really risk-averse, you can branch out into other asset classes like bonds or gold.
Foolish takeaway
Risk is something you simply have to accept if you want to invest in growth assets like ASX shares. The market isn't always rational, so portfolio volatility is simply just part of the deal.
In saying that, there are steps you can take to help the 'sleep at night' factor, and I hope the 3 above prove useful in that regard!
