According to Edward Smith, head of portfolio management at AUI, while strategies will vary between investors based on their individual circumstances, “the common ground should be that all investors have a strategy”.
Investors can also get distracted from their long-term strategy by short-term considerations such as tax minimisation schemes or fast-track investment opportunities, such as what happened in the lead up to the global financial crisis (GFC).
“Indeed, following the GFC, many people abandoned any concept of a diversified approach by putting everything into cash,” Mr Smith added.
“It’s easy to get sidetracked by what is happening in financial markets, but investors need to make decisions based on where they are, not on where the market is.
“Also, investors shouldn’t wait for a particular point in time – for example, for markets to return to ‘normal’ or to reach a certain level – before making investment decisions.”
Mr Smith said there will always be “interesting times” in financial markets so there is no point trying to time them in that way.
The three key considerations of any investment strategy are the timeframe, the objectives, and the personal circumstances and opportunities of the investor, according to Mr Smith.
Regardless of those factors, diversification is always a requirement of a sound investment strategy, he added.
“Having developed a strategy, it is then important to review the progress of your investments against the strategy regularly, but to avoid knee-jerk reactions according to market volatility and other short-term considerations,” Mr Smith said.
“If an investor’s timeframe is 20 years, then a bear market this year or next year should not concern them unduly, as long as the portfolio is assessed regularly against objectives and any rebalancing is undertaken against these objectives, not purely present market conditions.”
