Navigating the Share Market Roller Coaster

*Please note that this article is intended for educational purposes only and does not constitute financial advice. It is important to consult with a qualified financial advisor or professional before making any financial decisions.

If you’ve ever ridden a roller coaster, you know the feeling: that heart-pounding, stomach-dropping sensation as you crest a peak and begin the swift descent. The share market can sometimes feel much the same. 

This week, concerning headlines have spotlighted what feels like a significant downturn in the share market, primarily driven by fears of a global recession. These worries escalated when U.S. consumer inflation soared to a 40-year high of 8.6%, sparking concerns that the Federal Reserve might respond with aggressive interest rate hikes to temper inflation, thereby heightening fears of a recession. This uncertainty has spooked investors globally, triggering a sell-off of stocks in the share market that has rippled through international markets, including here in Australia, where the ASX has taken a downturn.

Market downturns can be unnerving, but with the right approach, you can ride out the worry and perhaps even turn this financial dip into an opportunity.

Don’t Panic

First things first: take a deep breath. Market downturns are a normal part of the economic cycle. This is why having a long-term investing time frame is crucial. While it’s natural to feel a bit anxious in times like this, panicking can lead to hasty decisions that might not be in your best interest. Removing emotion from our decisions when it comes to investing is ideal, but easier said than done. The next best thing is to reflect on those feelings, be aware of emotional triggers, and understand how they can affect your decision making. Acknowledging these emotions is important. It’s equally crucial to remain grounded and remind yourself of the bigger picture. Staying focused on your long-term goals helps mitigate the impact of temporary setbacks and maintains clarity in your investment strategy.

Revisit Your Financial Goals

A downturn is a great time to revisit your financial goals. Are you investing for retirement, your child’s education, or that dream vacation? Your investment horizon—how long you plan to keep your money invested—can help guide your decisions. If your goals are long-term, you might be able to ride out the storm without making drastic changes.

Assess Your Portfolio

Take this opportunity to review your portfolio. Are you diversified enough? A well-balanced mix of assets and economies can help cushion the blow during volatile times. Diversification doesn’t eliminate risk, but it can help manage it.

Look for Bargains

Believe it or not, a market downturn can be a savvy investor’s shopping spree. During these times, shares often go ‘on sale’, allowing you to purchase shares in generally strong companies at reduced prices. Think of it like the Boxing Day sales—just as you can find great deals on goods, you might also secure valuable investments at a bargain. Buying shares during a downturn can pay off significantly when the market recovers, provided you have the resilience to withstand the volatility. But it’s not for everyone! This approach requires a keen eye for potential and a steady nerve.

Stay the Course

It might be tempting to sell everything and wait for the storm to pass, but history shows that staying invested usually pays off. Timing the market—predicting the perfect moment to buy or sell—is notoriously difficult. Instead, evaluate your situation by asking yourself a few critical questions: Are you comfortable with your investment timeframe? Does your strategy align with your long-term financial goals? Do you have access to other funds that allow you to keep your investments intact during downturns? By affirming these elements, you can maintain confidence in your course of action, even through market volatility.

Boost Your Emergency Fund

Having a solid emergency fund can provide peace of mind during uncertain times. If you don’t already have one, consider setting aside three to six months’ worth of living expenses. This safety net can prevent you from having to sell investments at a loss if you need cash unexpectedly.

Seek Professional Advice
If you find yourself unsure on what to do, don't hesitate to seek advice from a financial adviser. A professional can offer personalised guidance tailored to your unique situation, helping you stay focused on your long-term goals. They can also assist in removing emotion from your decision-making process, providing much-needed reassurance and guidance during tough times. By leveraging their expertise, you can make informed decisions that align with your financial aspirations.

And finally, Embrace Perspective. 

One of our favourite investing sayings is, ‘if in doubt, zoom out.’ This advice highlights that while markets are inherently volatile, perceived significant downturns often appear minor in the long-term context.

The media tends to spotlight isolated events, as sensational stories tend to attract more attention—why? Because it sells! If recent market dips have felt overwhelming, consider stepping back to examine the broader historical trends. Reviewing a longer timeline not only provides a clearer understanding of the overall market trajectory but also helps maintain perspective during periods of fluctuation.