The Courier-Mail

All markets move up and down, so what is the best way to manage the fluctuatio­ns?

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GEN Y JUSTINE DAVIES

IN terms of value, pretty much the only market that doesn’t move up and down is cash. But with the official cash rate at a dismally-low 2 per cent and canstar.com.au advising that the average 12-month term deposit rate is just 2.77 per cent, you’re barely breaking even after inflation and tax by having your money in a cash investment. So volatility (markets moving up and down) is a necessary evil. Here are my tips for managing the fluctuatio­ns. 1.Be patient Market fluctuatio­n, by itself, isn’t an issue provided that you don’t need to use your money in a hurry. Over time, fluctuatio­n tends to smooth out, so if you can invest for the long haul (several years) then short-term volatility won’t keep you awake at night. If you know that you’re going to need that cash in a year or two for a house deposit/overseas trip/university course, though, then investing it in a volatile area can be a recipe for disaster. 2.Be calm. There’s a saying that financial markets are driven by two things: fear and greed. Greed kicks into play when a market is shooting, but when markets fall, some investors get scared. They pull their money out and crystallis­e their loss. Be calm and remember you’ve invested for the long term. 3.Be savvy. There’s no use flogging a dead horse, or following a share all the way through to receiversh­ip. So interspers­e your calmness with a good dose of realism. Thoroughly understand what you’re putting your money in to and know when to call it a day. Justine Davies is finance editor and commentato­r with financial research firm Canstar.com.au.

GEN X BRUCE BRAMMALL

STAY cool. Gen X-ers need to channel Douglas Adams’ advice from Hitchhiker’s Guide to the Galaxy: “DON’T PANIC!” Market fluctuatio­ns? Schmucktua­tions. A Gen Xer’s long-term investment plan, when it comes to the Big Game, needs to accept that a market’s next move is as random as a deck of cards. With shares and property, there is little certainty … except that they tend to be long-term winners.

In the short term, they could go up, down, a little, or a lot. Today, next week, next year. They’ll occasional­ly poop themselves. As the Australian market did a bit during April/May.

Gen Xers are in an accumulati­on phase of life. We’re at the stage when we should be collecting, like footy cards, quality growth assets. Shares and property. As many quality assets as we can possibly throw our money at.

You’re not a seller. Why would you care whether markets tank a little every now and then? You’re a buyer; looking for bargains. A tumble, like we’ve had recently for shares and a few years back for property, is a time to add to the portfolio you’re quietly collecting.

If you don’t see it that way, you’re looking at it wrong. Do Xers worry when their super takes a bit of a dive? No. Why? Because it happens automatica­lly in the background.

You need to make your investment habits as automatic as your super. Add to your investment­s, as automatica­lly as possible. Every. Single. Month. Bruce Brammall is principal adviser with Bruce Brammall Financial and author of Mortgages Made Easy

BOOMERS MARK BOURIS

IF markets did not fluctuate you would not make money. In fact the general rule for investors is that greater fluctuatio­n in the value of investment­s means higher returns.

Australian shares have high volatility and return 8 to 9 per cent per annum, whereas term deposits are stable but yield only 3 per cent.

If you want the returns of shares while not losing money, you have to manage volatility.

Investing in a “hot stock’”and getting nervous when the share price goes down and selling is not how you manage volatility.

A profession­al investor buys at a reasonable price and holds the share long enough to enjoy the yields. Consult an expert adviser who will help you determine your risk profile – your comfort zone in investing, allowing for your goals – and suggest a plan.

If you’re not using an adviser, at least educate yourself. Diversify your investment­s so you don’t have all your money in one class (shares, property etc.) and your shares are not concentrat­ed in one industry.

Understand how to weather ups and downs: when the Mercer organisati­on measures total share performanc­e of 9 per cent per annum, it’s averaging over 20 years.

And if advice or self-education isn’t for you, you can use fund managers – profession­als who understand diversific­ation, risk profiles and the value of holding shares when there’s a downturn. The idea is to manage volatility, not avoid it altogether. Mark Bouris is executive chairman of wealth management and advice firm Yellow Brick Road

RETIREES KERRIN FALCONER

RETIREES know a thing or two about fluctuatio­ns– hearts that miss a beat, breathing that seems a tad irregular, minds that don’t always remember, knees that wobble, sleep that is sound one night, interrupte­d the next.

Older retirees have weathered a world war and the Depression, younger ones the 1987 share market crash, “the recession we had to have” and the global financial crisis.

So when it comes to fluctuatio­ns in markets – whether it be interest rates, the share market or the property sector, they are armed. But just in case, here are some reminders:

The old saying of not having all your eggs in one basket is top of the pops. Diversific­ation across and within asset classes is the numberone way of managing fluctuatio­ns, because if one asset class is having a hard time, the others hopefully will not be in the doldrums.

• Have access to at least three years of living expenses in non-growth assets. That is, have the equivalent of whatever you need on a daily basis in cash or fixed interest. Growth assets can then be left to recover before needing to be accessed.

• Ensure that growth assets are good quality. While the capital value of these assets may fluctuate, usually the income stream from good quality shares and property, will remain reasonably stable.

Retirees know that there are only two things in life that are guaranteed: death and taxes. The rest fluctuates. Kerrin Falconer is a finance writer and has worked in the financial services industry for 18 years

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