Making financial decisions amidst changing markets and economic environments.

Rising interest rates, inflation, property demand, world events...

There are plenty of things happening in the world. It sure does keep the media busy.

History shows that we are in the fastest progression of human change—ever. And most of that change is good news.

But with all lots of change comes lots of noise. Especially around our finances.

The barrage of noise can lead us to two ways of responding:

Respond in fear,
Respond with sticking to our long-term plan

When it comes to our finances, the first option isn’t ideal in any situation. Research shows that we operate out of fear or panic, we make reactionary decisions that will lead to loss.

But if have a long-term plan and stick to it, research also shows that we are more likely to succeed in achieving our goals.

When we have a long-term plan for our money, short-term changes in the markets and economy are our friend. Why? Because volatility when investing regularly (also known as dollar-cost-averaging, like your regular super contributions), can produce better long-term returns than little to no volatility. (Assuming you are investing in actual asset classes).

For example, consider the chart below:

What does this chart show us?

It shows that out of the last 28 years, 20 of those years were positive returns—even when the intra-year returns were negative. So even with a positive return over any given year, there was always some drop in the market during that year.

Ignore the noise

Whether it's a rumour of war, a looming interest rate rise, or a supply shortage in the economy – people will react to change and that affects markets in the short term. But zoom out to the bigger picture, and you'll find businesses and business sectors moving forward.

This is where we don’t want to be the person calling the shots. A team of professional investors will get a better result.

Eg. An active fund manager can bring experience and insight to navigate changes in economies and markets to keep investing your money into businesses and business sectors moving forward.

The lesson is, don’t panic. No matter what's seemingly happening around the world, in the news, or on Facebook (or Tick Tok!), more often than not a pull-back in any equity market is an opportunity, not a reason to sell.

“The stock market is a device for transferring money from the impatient to the patient”
– Warren Buffett

Having a long-term plan with your finances and sticking to that plan will create long-term compounding returns and move you towards financial freedom.

Want professional advice around your finances and investments?

Talk to our Financial Advice partner RightTrac:

Talk To RightTrac Team

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Further reading on this subject, from our friend Morgan Housel:

Morgan Housel on Greed and Fear, Frugality and Paranoia