This article was last updated on March 14
FEAR is one of the most powerful forces in investing, as it is in life. One of the biggest universal fears is that of losing money, particularly when it can be so tough to earn in the first place. Yet those who fail to embrace fear run the risk of never being financially free.
Fear and greed are the two biggest forces driving investment markets, and fear has had the upper hand since the markets became downwardly volatile late last year. US shares, international shares and property have all fallen sharply as investors panicked and sold out of their investments. The result has been many people losing between 5 to 30 per cent of their investment portfolios and retirement account in just a few months. But as we are seeing of late, markets are slowly recovering and if you were well diversified your investments are regaining most of their value. So for long term investors the falls over the last 6 months would have been a minor blip in their net worth and a good opportunity to harness the power of dollar cost averaging
Financial experts say those who let fear rule their decision-making and sell their investments during a downturn are more likely to miss out on longer term gains. By the time their confidence returns, markets will have usually bounced back strongly.
Successful investors make fear their friend
Warren Buffet, the world’s richest investor, made much of his billions by – in his own words – being greedy when others are fearful and fearful when others are greedy. He buys bargain-priced shares when everyone else is selling. There have been plenty of bargain-priced shares on offer in the last few months – energy, agriculture and even technology sectors have enjoyed huge gains as people continued to buy. Blue-chip companies with long histories of profit growth dropped so low that in some cases their dividend payments alone were delivering a higher annual return than term saving accounts.
The share market has bounced back over 15% per cent from its lows, though some experts believe it might experience further volatility n in the coming months. There are still many uncertainties swirling around markets like oil and inflation, but one of the biggest mistakes investors can make is choking on the fear of losing money in the short term, or of losing more money.
History has shown that the share market outperforms all other forms of investment over the long term. The short term future is still clouded by fear and uncertainty. The long term future, as always, looks positive