The S&P/ASX 200 Index (ASX: XJO) closed down 1% today, bringing its year-to-date losses to 11%.
"Successful investing can be really hard in times like the present," writes Shane Oliver, AMP Capital's head of investment strategy, on Livewire.
"Falls in share markets and other assets are stressful as no one likes to see their wealth decline, and the natural inclination is to retreat to safety."
So, what can ASX shares investors do to make the most of times like this, without panicking?
Expert says 'share market falls are normal'
Oliver's no. 1 tip for investors today is to accept that ASX shares will fall now and then. He says the trick is "to make the most of the power of compound interest".
…periodic share market falls are healthy and normal. Sometimes they are just 5% to 20% corrections, but every so often they can be deep bear markets with falls up to around 50% as in the GFC.
But while share market pullbacks can be painful, it's the way the share market has always been, so they are nothing new.
Bouts of volatility are the price we pay for the higher longer-term returns from shares compared to other assets like cash and bonds.
Oliver's top tips for ASX shares investors today
Here's what Oliver recommends:
- Selling shares or switching to a more conservative investment strategy whenever shares suffer a cyclical setback just turns a paper loss into a real loss with no hope of recovering
- You may be thinking "but I will reinvest once uncertainty is removed". But the risk is you don't feel confident to get back in until long after the market has fully recovered, which may be well above the level you sold out at
- When shares and all assets fall in price, they're cheaper and offer higher long-term return prospects. The key is to look for opportunities pullbacks provide. It's impossible to time the bottom, but one way to do it is to "average in" over time
- At times like this, negative news reaches a fever pitch. It's best to turn down the noise of all the negative news flow
The bottom line for ASX shares investors today: "The best way to guard against selling on the basis of emotion after weakness is to adopt a well thought out, long-term strategy and stick to it."
