Buy the dip: Australian investors embrace market volatility

Posted: 18 March 2022 11:57 am
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Market volatility can create opportunities and Aussie investors are looking at buying the dip.

The first few months of trading in 2022 have been a tumultuous time for investors. Between rising inflation, central banks lifting rates, conflict in eastern Europe and the possibility of a second recession in just 2 years, markets have become incredibly volatile.

But research conducted by Superhero shows that Australian investors aren't concerned.

In fact, when Superhero asked what investors would do if their portfolio fell 20%, 1 in 2 people said they would hold, while a further 31% said they would buy the dip.

Just 2% said they would cash out.

Superhero's CEO and co-founder John Winters said volatility might be unsettling, but with the right levels of diversification and asset allocation, investors should be able to see through this current market cycle.

"While market volatility can be disconcerting to investors, particularly new investors, I'd urge people to think about their bigger financial goals and continue on with their investing strategies," he said.

Why are the markets so volatile?

The share market as a whole remains incredibly volatile as geopolitical and economic pressures continue to have an unknown impact on share prices.

Markets like certainty. And the current market backdrop is anything but certain.

Instead, the market is facing high inflationary pressures as bottlenecks that started during COVID-19 continue to see prices rise. Add to it a war in Ukraine putting pressure on oil and wheat prices and inflation is growing.

While a little inflation is good, too much is a bad thing.

This is leading to central banks around the world looking to lift rates to slow the spending down and cap inflation.

While the Federal Reserve in the US lifted rates for the first time since 2018 this week, it predicts it may need to continue hiking up rates to curb inflation.

As such, it is warning of the possibility of 6 rate rises, although it should be noted this is starting from a historically low point.

Worst case scenario in all this is a process known as stagflation, where output stalls and inflation remains high.

Combined, this economic backdrop is seeing markets remain incredibly volatile for businesses to operate in, meaning share markets are increasingly volatile.

What are other retail investors doing?

Superhero said that Australians see the market falls as an opportunity due to having a long-term view and self-education into how market cycles work.

While the line goes "past performance is not a reliable indicator of future returns", over the long-term markets have always set a new record high.

As such, the current falls could be an opportunity. Although knowing when to buy isn't always clear.

Winters highlights that through education, retail investors are seeing the current falls as more of an opportunity than something to fear.

"From listening to podcasts to reading the news, we know that our customers have never been so engaged with their investments, which means even a dip is viewed as an opportunity," Winters said.

Is there a strategy to follow?

Unfortunately for investors, there are no set rules or a single strategy that they should follow during periods of volatility.

What you decide to do is ultimately a personal decision based on your own financial needs.

Instead, Winters reminds investors that this is normal.

Markets move in cycles, meaning there are times of growth and periods of decline. And investors should continue their own personal strategy throughout these market moves.

"Markets don't move in a straight line and while dips occur, the market has grown tremendously over the long-term, he said.

"If we look at events like the GFC in 2009 and even more recently the sharp sell-off in the early days of the pandemic, history shows the market always rebounds."

Remain focused on long-term goals

While market volatility can be disconcerting to investors, particularly new investors, investors are being told to remember the long-term objectives.

Superhero's stats indicate that 50% of inventors want to turn their money into more money, while 14% want to build a nest egg and 11% want to retire early. A further 7% are looking to save for a property deposit through the share market.

"Investing shouldn't be viewed as a short-term thing, but rather it's about making educated decisions to grow wealth sustainably over time."

"Strategies like dollar-cost averaging can definitely work but diversification is key," he concludes.

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