Getting punched doesn’t sound very nice at all, does it? We can say with certainty that nobody wants to get punched – ever! But when it comes to our finances, we need to learn to take some punches.
When sparring, your reaction is to cover up and protect yourself. This just naturally feels like the safest action to take. However, if you don’t throw any punches, you’re going to get hit 100% of the time.
In financial terms, there’s a common misconception that keeping your money in the bank is the ‘safe’ option. But to get the retirement that most Australians want to have, they need to invest in the biggest companies of the world instead. Simply having money in cash (term deposits) won’t get them to where they need to be. This is a mathematical certainty, not just our opinion – you can expect about an 8% rate of return from investing diversely in the biggest companies.
We know from the past that if you’ve invested most of your money in the biggest companies you will take some hits. But sitting in the corner covering up is not an alternative option. There’s no way to reach your dream retirement without any pain.
So what do you do when the market drops, then?
Having a plan helps – and sticking to that plan. Hold onto your shares – don’t sell them at cents on the dollar when everything is down. This is a common reaction – often people’s thought process is, ‘I’ll get out when I can, and then re-enter when things settle down.’ But by that point, they’ve lost their initial shares and will have to buy new ones. Not only that, but they would have also missed out on the returns of their initial investment.
So when it comes to your money, don’t just stand in the corner taking punches – take some action. Investing in the sharemarket comes with volatility – but standing still and not doing anything is worse.
