It’s tough being an investor right now.  It’s even harder to be a retiree investor because retirees are generally more conservative than their younger selves. Let’s face it, most of us are feeling significantly poorer than we were 12 months ago.   With the US share market off 16 percent since the start of the year, house prices falling for six consecutive months, and with the cost of living rising at levels not seen for 30 years, it’s no wonder that retirees might be losing confidence.

But this is not the first economic slowdown we have seen and it’s not the first market correction.  Here are the five most important things for retiree investors to remember during uncertain times.

1. Volatility is normal

Volatility is an inherent feature of investing. Market confidence can falter for any number of reasons; as a result of economic uncertainty, monetary or fiscal policy changes, financial contagion, geopolitical tension or simple shifts in investor sentiment

2. Equity risk is rewarded in the long run

Equity investors are typically rewarded for the extra risks they bear. In the long-term, asset prices are driven by fundamentals (such as earnings) rather than emotion. Stocks have generally outperformed other asset classes in real terms.

We understand that as a retiree, you’re both a long-term and short-term investor.  That’s why we compartmentalise your investments based on time, so you can own your long-term assets over the long-term.

3. Be aware of loss aversion

As human beings we all experience emotions when we invest.  When we experience strong returns, we feel positive emotions like joy and optimism.  But when we lose money from negative returns, we feel fear and often anger.  

In fact, for most of us living in retirement, losses hurt more than gains feel good.  The intense pain can create a bias called ‘loss aversion’.  Loss aversion can lead investors to sell their investments at the wrong time.

There is some evidence that investors use a rule of three in dealing with losses. 

They are prepared to ride out the first correction in the market; they are pained by the second correction but hold on; but finally, they capitulate after the third wave of selling pressure and don’t participate in the inevitable market recovery.

4. Diversification smooths returns

The single, most effective way to manage volatility is to invest broadly.  By investing in a spread of cash, fixed term investments, property and shares across different geographies, you can effectively smooth returns and avoid extreme losses.

5. Don’t get caught up by sweeping sentiment

The share market tends to ebb and flow in accordance with popular investment themes. 

Investors need to take a discriminating view and not allow the euphoria of the market to cloud their judgement.

At When Financial Solutions we understand that investment outcomes are just as much a result of what you don’t do as what you do. We will help you stay the course and improve your investment outcomes in the long run.  It’s not a matter of ‘if’ but ‘when’.    

 This article is general and does not consider your personal circumstances so it may not be appropriate to you.  If you would like advice specific to you, please give us a call.