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Market volatility series part 3: How can you reduce the impact of market movements?

Whenever a stock market decline is splashed all over the news, you probably feel like you should be taking some action. But when it comes to investing, a hasty decision is rarely a wise decision.

Instead, it’s worth thinking strategically about how you can structure your investments to reduce the impact of these market fluctuations. And by choosing the right mix of assets to invest in, you’ll have a better chance of achieving your long-term financial goals. Here’s how to do it in five steps.

Step 1. Consider which type of investor you are

Almost every investment comes with some level of risk – and generally speaking, the greater the risk, the higher the potential returns. So first of all, think about how comfortable you are with short-term market fluctuations, which can impact the face value of your investments. And remember, your comfort level may change as you move through different life stages.

For instance, if retirement is still a long way off, you might choose to invest heavily in growth assets, as you have a longer timeframe to ride out any dips in the market and generate returns over the long term. On the other hand, if you’re approaching retirement, you may be more conservative in your investment approach so you can protect the wealth you’ve already accumulated.

Step 2. Understand the different asset classes

Different investments fall into different asset classes, each with their own levels of risk and return. The more common classes are:

  • Cash – this includes money held in interest-earning savings accounts. It provides a stable and easily accessible income.
  • Fixed-interest investments – this include term deposits and government or corporate bonds. They pay regular interest over a fixed term, usually between one and three years. 
  • Property – this includes direct property investments but also property securities, which allow you to invest in commercial, retail and industrial property holdings via the stock market.
  • Shares – also known as equities, these give you part ownership of an Australian or international company, allowing you to earn dividends through capital growth.

If you’re approaching retirement, you may be more conservative in your investment approach so you can protect the wealth you’ve already accumulated.

Step 3. Diversify your portfolio

Every market moves in cycles – so no matter which assets you hold, they’re bound to go through periods of downturn. So to help offset market volatility, consider investing in different industries and asset classes. This strategy is called diversification.

Each investment can perform differently under the same market conditions, so when the value of one falls, another may go up. While there are no guarantees that diversification will fully protect you against loss, spreading your capital across a range of investments can balance out the overall levels of risk and return in your portfolio.

Step 4. Consider other ways of investing

If you’re nervous about investing in shares directly, there are other alternatives available. One option is to invest in a managed fund, where you pool your money with other investors. Your combined capital can then allow you to invest in assets that might otherwise be out of reach to a sole investor. It can also help spread your risk exposure across a wider selection of investments.

There are many different types of managed funds, and they all usually focus on a specific investment objective. Each comes with its own risk profile and approach, so make sure you shop around to find one that best aligns with your investment strategy.

Step 5. Review your investments regularly

For many of us, our investments tend to be something we set and forget. But it’s worth revisiting your investment strategy from time to time – and not just when markets move significantly. That way, you’ll be better prepared when markets do become volatile.

Your financial adviser can make sure you have the right mix of assets for your investment timeframe and risk profile. Your adviser can also help monitor your investments through periods of increased market movements, so you can be confident that you’re on track towards meeting your financial goals.

Want to learn how you can market movements to your advantage? Find out here.


This document has been prepared by Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State). The information, opinions, and commentary contained in this document have been sourced from Global Markets Research, a division of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945. Global Markets Research has given Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) its permission to reproduce its information, opinions, and commentary contained in this document and for Colonial First State to authorise third parties to reproduce this document. This document has been prepared for general information purposes only and is intended to provide a summary of the subject matter covered. It does not purport to be comprehensive or to give advice. The views expressed are the views of Colonial First State at the time of writing and may change over time. This document does not constitute an offer, invitation, investment recommendation or inducement to acquire, hold, vary, or dispose of any financial products. Colonial First State is a wholly owned subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124, AFS Licence 234945 (the Bank). Colonial First State is the issuer of super, pension and investment products. The Bank and its subsidiaries do not guarantee the performance of Colonial First State’s products or the repayment of capital for investments. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. The PDS and FSG can be obtained from or by calling us on 13 13 36. Past performance is no indication of future performance. Stocks mentioned are for illustrative purposes only and are not recommendations to you to buy sell or hold these stocks. This document cannot be used or copied in whole or part without Colonial First State’s express written consent. Copyright © Commonwealth Bank of Australia 2019

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