Investing in a Downturn

Volatile markets test investors, but staying calm and focused on long-term goals can help people navigate uncertainty with more confidence. Over the past few years, we’ve seen global events like COVID-19, rising interest rates, persistent inflation, and political instability shake up the markets. These events have made people nervous, and that’s completely normal.

For retirees in particular, it can be tough. They often rely on their investments to provide steady income, and when markets drop, it can raise real concerns about how long their money will last. Add rising living costs into the mix, and it’s no wonder people are feeling the pressure.

But it’s during these challenging times that some of the most important investment lessons come to life. Here’s a breakdown of a few helpful concepts that can make volatile times a little easier to understand.

Stay Focused on Your Goals

When the market is going well, it’s easy to be optimistic and think long-term. But when things get bumpy, people often shift to short-term thinking. Some may even consider abandoning their original plans altogether.

It’s understandable, no one likes to see their portfolio drop in value. But reacting emotionally to market swings can lead to poor decisions. Staying focused on your long-term goals, whether that’s retirement, saving for a home, or building wealth over time, can help you make better choices.

If you had a clear investment strategy before the downturn, try to remember why you set it up in the first place. The strategy you chose was likely based on your time frame, financial situation, and comfort with risk. These are still important, even when markets are volatile.

Volatility Is Normal

It might not feel like it, but ups and downs in the market are a normal part of investing. Markets move in cycles. That means periods of strong growth are often followed by dips or corrections.

Take the Australian stock market, for example. The ASX 200 has had years of strong gains and years of decline. But over the long term, the overall direction has been up. That’s because markets tend to recover from downturns and often go on to reach new highs.

So while a downturn can feel alarming in the moment, it can also be seen as just one part of a much larger picture. Remember, investment growth doesn’t happen in a straight line.

Time in the Market Matters

There’s a saying in investing: “Time in the market is more important than timing the market.”

In other words, staying invested is usually better than trying to guess when to buy or sell. If you try to avoid losses by pulling your money out during a downturn, you might miss out on the recovery, which can sometimes happen quickly and unexpectedly.

Markets have a history of bouncing back. Some of the strongest days of market growth happen right after a downturn. Being out of the market on those days could mean missing a significant boost to your returns.

Don’t Expect Double-Digit Returns Every Year

Some years, markets have surged with impressive double-digit gains. While it’s great to see those returns, they’re not something investors can expect every year.

Over time, average returns from diversified investments usually sit in the single-digit range. That’s still a solid result especially when you consider the power of compounding, where your investment earnings generate more earnings over time.

Investing is a long-term journey, and focusing on short-term performance can be misleading. Superannuation, for example, is designed to grow over decades not months or years.

Downturns Can Offer Opportunities

Market downturns often create opportunities. When prices fall, some investments may be undervalued which can be like finding them “on sale.”

Some people see these periods as a chance to buy quality investments at lower prices. However, not every discount means it's a good buy. It’s important to understand what you’re investing in and feel comfortable with your level of risk. Investing during a downturn isn’t about chasing fast gains, it’s about taking a long-term approach.

Risk and Return Go Hand in Hand

There’s another saying you might’ve heard: “High risk, high reward.” That idea can sometimes hold true, but it’s important to also think about “high risk, high volatility.” If you’re someone who loses sleep over market dips, then chasing high returns may not align with you.

Everyone has a different risk tolerance or comfort level with how much their investments rise or fall. Some prefer steady, lower-risk options, even if the returns are more modest. Others are more comfortable with ups and downs, knowing that higher potential returns may come with higher volatility.

Understanding your own risk profile can help guide your decisions, especially during uncertain times.

Keep Perspective: History Favors the Patient

It’s easy to focus on what’s happening right now, especially when headlines are negative or markets are falling. But looking back at history can provide some reassurance.

There have been many market downturns in the past, some short, some longer, but over time, markets have recovered. Investors who stayed the course and didn’t panic often saw their portfolios rebound and grow in the years that followed.

This doesn’t mean ignoring what's happening. It simply means recognising that patience and discipline can be valuable tools when things get tough.

Emotional Investing Can Be Risky

When markets fall, fear often takes over. This is a natural human reaction. Emotional decisions in investing can sometimes lead to buying high (when everything feels great) and selling low (when things feel concerning).

Trying to time the market or respond to every news headline can be exhausting. That’s why having a steady plan and focusing on your own goals can help you avoid being swayed by emotions.

Downturns Don't Last Forever

Market volatility can feel overwhelming, but it doesn’t last forever. Historically, downturns have been followed by recoveries, sometimes strong ones.

By remembering a few key concepts: staying invested, thinking long-term, and avoiding emotional decisions, it may be easier to ride out the storm and come out stronger on the other side.

Everyone’s situation is different, and it’s important to feel comfortable with your investment strategy. Staying informed and focused on the bigger picture can help you make sense of market swings.

About Us

After working as an advisor for a decade, Joel founded Unified Wealth.

Unified Wealth specialises in helping clients who are facing life’s big decisions.

Whether you’re contemplating your first property, growing your family or starting your investment journey we can help you focus on the simple steps to help you make your goals reality.

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At Unified Wealth our team is highly experienced and provides goal-based advice and solutions for a range of advice strategies.

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