Another 2.5% fall. Here's what we're thinking

See-sawing Wall Street, and losses on the ASX. What's an investor to do?

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As I write this, the ASX has just closed.

The All Ordinaries is down another 2.3%.

But, some context.

The All Ords is now at a level last seen in… May, last year.

Yes, going nowhere in 8 months isn't great… but it's hardly a disaster, right?

It's also still up 3% over the last 12 months, plus dividends, making the total return probably around 7 – 7.5%.

Not ideal, but not terrible.

The headlines will focus on the daily movements. The last week. Maybe 2022-to-date.

Those numbers will be accurate. And real.

But they won't tell the full story.

Which is not to ignore the very real feelings of nervousness and fear that many people have, right now.

We humans are funny. We take the gains in our stride, but panic over falls of precisely the same size.

If your $100 invested 12 months ago was worth $107.50 today, and you knew nothing else, you might wish the result was closer to the historical 9 – 11% average, but I doubt you'd give it a second thought.

Isn't that how we should approach investing, though?

I think so.

And doubly so when you consider we lived through the Delta and Omicron strains of COVID during that time!

No, I don't expect you to be an unfeeling automaton.

And I can't make the pain go away.

But I hope the perspective will help you keep your nerve, and stay in the game.

Speaking of which, below is an article written by our Director of Research, Kevin Gandiya, with his thoughts on the recent volatility.

I think you'll find it useful.

Stay In The Game: How To Invest In Today's Volatile Market

Sometimes it's easy to be an investor, and other times….. It's not!

Let's not mince our words. The past few weeks and months have been brutal for growth-focussed investors. 

Whilst the main indices have held up until now, that has been hiding the carnage beneath the surface. 

With the ASX All Ordinaries Index down only 6% from it's all time high, the ASX All Tech Index is down 20% from it's all-time high (all figures as of 24 January 2022). 

Some individual companies are down even more! Xero (ASX:XRO) is down 25%, while Block (Square) (NYSE:SQ) (ASX:SQ2) which acquired Afterpay is down 57%! 

It's been challenging and we all share in your pain. It's hard seeing stocks that we own taking their knocks in the market. And because we don't try to predict what zigs and zags that the market may take in the short-run, we don't know if stocks are done yet with their southern detour.

But as hard as it may be to stay committed to your long-term game plan when times are tough, this is where the rubber meets the road. This is where investing mettle is formed and those who are willing to take advantage of new opportunities can really position themselves to win.

If you are going to be an investor for the rest of your life, if you are going to build wealth in the stock market; then you need to be prepared to go through market environments like the one we are currently in. 

We know it's not easy, but we're here to help you. 

So let's take a look at what concrete actions you can take right now to stay focused, ride out the volatility, and set up your portfolio for long-term success.

Clear your mind up

Bear markets clear the decks and set the stage for the next bull market. The 2000 crash, the 2008 global financial crisis and the March 2020 pandemic crash were all scary to go through but they set the stage for a new bull market. 

How many times do you hear investors wishing they had bought stocks during those lows? If you aren't in the right frame of mind, it's difficult to maintain perspective and be on the lookout for opportunities when everyone else is panicking. 

Go for a walk or run, get some exercise, eat well, sleep well then come back focussed on finding new opportunities for the next uptrend. 

Make sure that any money you need in the next three years is NOT invested in stocks

This is true not just when markets are volatile or falling, but in bull markets as well. If you've got money earmarked for near-term spending needs — whether that's for living expenses in retirement, a down payment on a house, or anything else — that money should be in a safe, liquid investment. And that means cash or a cash equivalent.

Is cash an exciting and high-yielding investment? Absolutely not. But it's the best place to ensure that assets you need in the next few years are totally safe. 

Cash allows you to sleep well at night knowing that your immediate needs are covered. And when you know that you are not in danger of being unable to meet your near-term financial goals, it should be easier to maintain your long-term outlook with respect to your stocks.

If you've got cash sitting on the sidelines, now is the time to get it to work

It's human nature to second-guess your investing decisions when your stocks are down, but we try to look at market declines as opportunities. 

There are likely to be some solid businesses out there now trading at a discount. And history has shown us that it is usually more advantageous to get cash earmarked for investing to work in the market sooner rather than later, regardless of what may happen in the next few weeks or months.

And that's important to understand because no one can predict with certainty when we'll see the bottom. While some stocks have already declined a lot, that doesn't mean it won't get worse.

Our favoured approach in times like these is to dollar cost average into the market (i.e. consistently buying periodically (could be weekly) to take advantage of the lower prices). 

Use this environment as an opportunity to revisit your risk tolerance and portfolio allocation

Market corrections certainly aren't fun, but they do offer a unique chance to see how well your expected appetite for risk lines up with your actual appetite for risk. 

It's one thing to invest aggressively when stocks are up, but actually experiencing the downside is another matter. If you find that you're a bit out of line with your true tolerance, you may want to consider making a few adjustments. 

Reflect on your personal circumstances, your personal risk tolerance and make sure that you are investing accordingly.  

Consider taking a step back if frequent market monitoring is causing you anxiety

While it's understandable that you want to know how your investments are performing, obsessively tracking the daily gyrations of the market and your portfolio's value can be enough to drive even the most iron-willed investor to the breaking point. 

If you find yourself getting trapped in this cycle, you can always step away. If your portfolio is aligned with your long-term game plan, short-term volatility ultimately won't have an impact.

We don't want to make light of the frustration that so many investors are feeling right now. We're feeling that same frustration. 

But we've been through times like this before and we've emerged stronger, a bit wiser, and certainly more humbled. Fools, we look forward to investing alongside you today and decades from now, no matter what the market throws at us next.

We are on this journey together.

Yours sincerely,

Kevin Gandiya 

Director of Research

Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Block, Inc. and Xero. The Motley Fool Australia owns and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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