When financial markets get a shock, things happen quickly. Investors panic, markets plunge, the media fuels the situation with “crisis” headlines and reason flies out the window. The recent UK vote to leave the European Union is just the latest "crisis" to throw markets into chaos. The Pound Sterling plummeted to a 31-year low and trillions of dollars were wiped off global sharemarkets. Australia hasn’t been immune from the carnage, with the ASX 200 Index falling over 3 per cent and consumer confidence ratings falling in the face of increased uncertainty.
The thing to remember is that it isn’t the first time this sort of thing has happened and it won’t be the last. If you've been around a while you saw the crash of 1987, the recession of 1991, the Asian Financial Crisis and the 2008 GFC. Each one was a time of crisis and opportunity.
What can we learn from the past?
Here are a few things you can utilise, to put it all into perspective.
1. Don’t panic
No matter what the talking heads are saying, no-one is forcing you to panic and sell. In fact, history would seem to acvise against it. Rather than joining the stampede for the exits, take a deep breath, relax and begin to watch how things are actually going. See what happens as the market settles into a new "normal'.
2. What's your long term position?
Building wealth is a long-term game. There are always swings and roundabouts in the market. Be prepared to take advantage of the cyclical nature of the market, rather than the cynical fear-mongers trying to sell newspapers and TV "news". The smart money is waiting for prices to fall.
3. Review your investment strategy.
Take the time to review your investment strategy and think about whether it’s still right for your needs. What are your investment goals, and have they changed since you last thought about them? Are you still comfortable with your earlier risk levels? Can you still meet your objectives, despite the setback?
4. Prepare for the future.
Now is a good time to think about how to better prepare your investment portfolio to cope with future market downturns. Do you eed to diversify a little? Are you too exposed to one asset class? Would you benefit from investing in fixed interest or property... or would a foray into the market, for a little bargain-hunting be a better strategy.
5. Take advantage of low prices.
Sharemarket turmoil can be an opportunity to purchase shares in quality companies at lower prices. Even the strong companies can lose value in a general panic. You may not pick the bottom of the market, but if you can identify good companies at prices you believe represent value then a market turnaround may see you make a tidy gain.
6. Seek advice before you act.
If you’re uncertain about your investment strategy or what you should do in response to the Brexit, it makes sense to talk to your financial adviser. They will have already fone a fair bit of research and may be able to allay your fears, giving you some strategy adjustment advice. The peace of mind that comes with professional help is priceless.