Dec 24, 2020  | Tags: 2020, COVID-19, Investment

Our Insights

2020 has certainly been a rollercoaster of a year for everyone, especially investors.

The global pandemic, stock market volatility and job cuts have seen many spiral and investors left shell-shocked. 

The good news is many investors continued to thrive through the pitfalls, while others have begun to adopt the investment and wealth lessons that have emerged in 2020.

Here’s what you can take onboard to strengthen your portfolio and become a successful investor in the new year.

Expect the unexpected

No matter how much we try to predict the upcoming market trends or financial events, we’ll never know what curve ball life decides to throw at us. So, investors need to always expect the unexpected and be prepared for anything that comes your way (both good and bad).

It’s key that investors not only establish their investment goals and strategies, but plan for a number of scenarios. This includes establishing different budget options and setting an action plan to follow in the event of a sudden change in circumstances.

Diversity is key

Diversifying is the best way to reduce your risk and maximise your returns.

While performance is impossible to predict every time (good or bad), staying diverse keeps your portfolio balanced and provides great security in a fluctuating market environment. 

By having a long-term diversity strategy, you also avoid falling into the trap of the ‘recency effect’, where decisions can be influenced by the last event in the market and you end up chasing stocks that may have already peaked.

A safety net is crucial

If COVID-19 has taught us anything, it’s the importance of having an emergency fund to fall back on to support you through a crisis, a job loss or even investment losses. For many this year, a safety net was the difference between spiralling into financial hardship or being able to maintain their lifestyle. Along with paying off debts, building your emergency fund should be a high priority. It’s recommended that investors allocate a portion of their income towards this ‘nest egg’.  Find out more about setting up your emergency fund here. 

Don’t act on your emotions

Investors have experienced many emotions in 2020 – stress, anxiety, frustration, greed, and the biggest one, fear. This particularly included the fear of missing out (FOMO) and the fear of being invested (FOBI). But what we’ve learned is that emotional reactions only lead to bad, rushed decisions.

Many investors across the year have been driven to quickly sell off their assets or cash in their super for extra money. And unfortunately these choices, which often deviate from an investor’s long-term vision, lead to big financial losses that can take years to recover.

So, investors need to stay resilient, stick to their strategy, remain logical and avoid sources that fuel their emotions, such as media commentary or family and friends. Investors also can set themselves rules which will reliably guide them through future investment decisions and avoid the risk of making knee-jerk reactions. Find out other strategies to managing your emotions here. 

There are opportunities as well as challenges

2020 provided great opportunities for investors, particularly for those with money to spare. While sectors such as travel and retail took a hit, other areas boomed, including pharmaceuticals, technology, health, logistics and some property sectors. So, it's important for individuals to maintain a positive mindset, change their attitudes towards investing and be courageous in their decision making during difficult times, because COVID-19 has proven that in every crisis there's a silver lining. 

Beyond investing, many people found they were actually spending less and saving more during widespread lockdowns. So, opportunities presented themselves for people to build their emergency fund, drill down on debt and making extra super contributions. Find out more here. 

Good advice has never been more important

In unprecedented times, investors often don't know whow to make their next best move. This is where great advice comes in. 

It’s crucial that investors don’t solely rely on family and friends for information. Instead, you should conduct your research via credible sources and seek expert advice from an experienced financial adviser. A professional can also provide insights tailored to your situation. 

Talk to the team at Calder Wealth Management. Call us on (08) 8373 3333 to schedule your free initial appointment.

Written by Ben Calder at Calder Wealth Management.

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.