If you take a look at the past month's chart of the All Ordinaries Index (ASX: XAO) you may see the resemblance to a shark's jagged maw. That's because volatility has ramped up, buffeting share prices on the ASX, and most global indices, with some big daily swings.
Last week, for example, the All Ords leapt 2.6% higher in Wednesday and Thursday's trade. Then it gave all those gains back, and more, losing 3.1% on Friday.
This week got off to a positive start, with the All Ords gaining 0.3% yesterday.
The Clean TeQ Holdings Limited (ASX: CLQ) share price led the charge, finishing the day up a stellar 27%. The Melbourne-based metals recovery and industrial wastewater treatment company has enjoyed a great month. Clean TeQ's share price, up 8.2% in intraday trading today, is up 71.1% since August 10.
The All Ords is marching higher today as well, up 1.0% in late morning trade, although it's still down about 0.8% for the month.
With this kind of volatility back in the markets, it can be tempting to hunker down and wait for things to settle before investing in any more shares. But, depending on your circumstances, that's probably a mistake.
Take a long-term view
Mark Haefele is the chief investment officer of global wealth management at Swiss multinational investment giant UBS. In a Friday note, he indicated last week's share market selloff was to be expected. After the strong run higher, particularly in US shares, investors were taking some profits off the table.
But Haefele added (as quoted by Business Insider), "Stocks are still well-supported by a combination of Fed liquidity, attractive equity risk premiums, and an ongoing recovery as economies reopen from the lockdowns."
Haefele, like us Fools, doesn't recommend taking a short-term perspective on investing. He writes, "Rather than trying to time the market and potentially miss out on gains, we recommend an averaging-in approach by establishing a set schedule to commit capital to stocks within a 12-month timeframe."
If you're not familiar with it, he's talking about dollar-cost averaging (DCA). This is a tried and true method to help reduce the impact of volatility in your share portfolio by investing a certain amount in your favourite shares each month (or period of your choice) over time, rather than investing the full sum all at once.
In a nutshell, it's a system to help you grow your wealth over time without anxiously analysing the daily price swings of your shares.
Diversify your share holdings
Haefele also highlighted the importance of something you'll find we stress here at Motley Fool as well. Namely the value of diversification, particularly during these days of COVID-19.
In his Friday note, he wrote:
The mega-cap IT complex has driven an outsize portion of the year-to-date gains in the US equity market. But while we don't think tech is in a bubble, we do recommend that investors with excess exposure to the biggest US stocks consider rebalancing into areas accelerated by COVID-19, such as companies exposed to the 5G rollout, and sustainability-aligned companies set to profit from a 'green recovery'…
COVID-19 has brought unprecedented uncertainty for investors, and further volatility cannot be ruled out. Diversification across asset classes and regions is the best way to manage the risks in one's portfolio.
It's worth reading that last sentence again. While there are many great shares on the ASX, simply diversifying across asset shares that are all listed on the ASX won't provide you with the diversity you need to protect your portfolio.
As the Motley Fool's Scott Phillips writes:
By investing part of your funds internationally you not only increase the opportunity to find the big winners of tomorrow, but you also reduce the risks that are specific to Australia. Risks that could seriously damage your portfolio.
Ignore the index
Prime Value portfolio manager Richard Ivers also sounds off on the benefits of taking a long-term view in share investing (as quoted by the Australian Financial Review):
If you look at the wealthiest people around Australia they've done it over a long period of time by compounding. So you fill up your portfolio with stocks that can do 10-15 per cent with relatively low risk…
We invest to generate an investment return, not to beat an index. So you just throw out the index. You don't really care what's the biggest weighted stock in the index. You're worried about making money.
In case you're wondering, Ivers' Prime Value Emerging Opportunities Fund returned 18.1% after fees for the year ending June 30. That compares to a -5.7% return of the Small Ordinaries Accumulation Index.
And if you want to uncover the powers of compounding on share prices, you can find out more here.
