Are We at the Bottom Yet?

It can be difficult watching your investments plummet as you wonder where the bottom is. Pie Funds Founder and CEO Mike Taylor explains how to keep a cool head during tough times.

Trying to time the market is difficult. That’s why you’ll hear investment managers say, “It’s about time in the market, not timing the market.” I’ve found that it’s very hard to work out when a market has reached the bottom.

In all the market turns I’ve seen over the years, no one rings a bell. It’s very, very hard, even for investment teams to determine exactly when the market’s going to bottom out.

Usually, it’s the time when you feel the worst, when you really feel like, “This is terrible, I need to just sell everything and crawl under the couch.”

It’s key to always have in the back of your mind that markets do recover. But despite this, you still might be feeling anxious or worried in the short term when you see your investments drop and lose value. That’s a normal feeling. Nobody likes to see their investments drop in value, even if it’s just on paper. I’m afraid the year ahead probably has more volatility in store for us. The world is going through some big events (the war in Ukraine, oil prices and inflation, among others) which are having an impact on a lot of people, and markets can take time to recover. Managing your emotions is one of the keys to investing success. If you can learn to stay calm, remain rational, and ride out the waves of volatility, you’ll likely do better over the long term. Here’s what I’ve found:

It’s normal to want to “do something”

But don’t do anything. In times like this, the impulse when the stock market dips is to do something. Anything. Our life savings are often on the line, after all. But don’t. Changing your investments during this time could end up costing your future self thousands or even tens of thousands of dollars. As well as that, feeling stressed and emotional is not a fun place to be, so learn some techniques that help.

Staying rational is key to your success

Staying calm and rational when it comes to your investments is a key part of long-term success. Many of us will be investors for most of our lives. Investing can be a good way to build wealth over the long term, but it is not worth losing sleep or getting upset over.

Market ups and downs will happen many times during your investment lifetime, and sometimes these downs will be severe and dramatic. The important thing is to take it in your stride, and try to avoid getting angry, anxious, or upset.

Investing is for the long term

Investing is more about emotions than it is about having a high IQ. Even though we say we won’t, in the heat of the battle most people decide to sell in the face of fear. Many of us know we shouldn’t react, but emotions overcome us, and we do. Looking back at 2008 during the recession, the best investors were those who hung in and didn’t panic and withdraw their investments, so they didn’t lock in their losses.

Even better were those who were buying when the world was selling. It wasn’t easy, let’s make that very clear, but they benefited significantly over the next few years as markets bounced back. Knee-jerk reaction changes based on the market can have major financial consequences further on. Long-term investors have time to recover. Know that volatility is simply part and parcel of the business of investing, and that staying focused – and educated – is the key to seeing through difficult times.

Be patient

Being patient means you’re willing to wait until your plan materialises. Building wealth and financial security takes time, and you’ll likely encounter financial challenges along the way. But viewing your finances and investment portfolio as a lifelong journey can help you remain patient and stay on course despite these challenges. If you haven’t received financial advice and the last few months have been particularly unsettling, maybe it’s the time to talk with an expert. There’s inherent value in a trusted relationship with someone who can travel with you on your investment journey. Another reason for anxiety could be that your portfolio is not set up to suit your personal situation and risk tolerance. An adviser can help with this.

6 tips for staying calm in a market dip

• Don’t check your investments too often. Every six or 12 months is good for most people. • If Facebook groups and other discussion forums are making you anxious, stop looking. • Be careful who you get advice from. Trusted professionals are always best. Be careful of well-meaning friends or online strangers. • Speak to your financial adviser.

If you don’t have an adviser and you’re struggling a bit, you might want to look into getting one.

Advisers can be a great support during tough times. • Focus on the long term. Think of your investment goals that are five or 10 years away. • Making decisions about your portfolio is best done when markets are calm, not during a dip.

Correct as at April 2022. Mike Taylor is the CEO and Founder of Pie Funds Management Limited. You can view our disclosure documents on the Pie Funds website. For personalised financial advice, please speak to a financial adviser.