MLC's top tips for weathering volatile equity markets

Thursday, 24 January 2008

MLC, Australia's second largest superannuation provider in Australia, offers some top tips for weathering the recent volatility in investment markets.

Brian Parker, MLC Investment Strategist, said "the recent weakness we have seen in Australian and global shares follows five years of amazing double digit returns - these returns were never going to be sustainable over the long term."

"In an environment of increased volatility, what's important is that people don't make knee jerk decisions. To keep you focussed on your goals during volatile times, keep in mind the following six insights."

1. Stay loyal to your long-term investment strategy - forecasting market returns in the short-run and making short-term changes to asset allocation are both mugs' games. Most people have a time horizon of decades for their superannuation fund and short term market volatility is nothing more than distracting noise. Sharemarkets generally reflect the broader economic environment so investors must expect periods of low or negative returns during weaker economic conditions. However, the reality is that markets bounce back and eventually return to and surpass previous levels.

2. It's time in the market, not timing the market that matters - over shorter time periods (up to a few years) sharemarkets are inherently volatile places. What is unusual is not the volatility of recent times, but rather the lack of volatility over recent years. Over the past 25 years, there have been 13 corrections in the Australian market (where the market has fallen by at least 10% from its previous closing high). However, most of those corrections now barely show up on a chart. Investors in shares need to be invested for the longer term.

3. Don't bail out early and miss the market recovery - reacting to market corrections is a dangerous investment strategy, because it often means you miss out on the subsequent rebound - the average 12 month return after a correction has occurred has been 9.4%. Missing this return would have a dramatic impact on your overall wealth. History has numerous examples of sharemarkets tumbling, and nervous investors bailing out, only to miss an eventual recovery.

4. Diversification is king - Investors with a well-diversified investment strategy that has been formulated as part of a long-term financial plan should not be unduly concerned with the markets' recent moves. The aim of diversification is to ensure your investments don't all move in the same direction at the same time, without compromising your long-term returns.

5. Risk and return are related - There is a strong relationship between risk and return - the higher the expected level of return, the higher expected risk (or volatility) you need to be willing to accept. The recent market volatility is therefore not unusual - it merely takes us back to long-term averages. Financial markets will have periods of both good and poor returns over time. Investors need to have a realistic expectation of what kind of returns are achievable and sustainable over the longer term given their appetite for risk.

6. Seek advice from a qualified financial adviser - two of the most important components of a financial plan are an assessment of your long-term financial needs and goals, and an assessment of your appetite for risk. If either of these components has changed, speak to your financial adviser. If they have not, then it is unlikely that the recent market movements should trigger a change in your strategy.

For further information, please contact:

Stacey Mitchell Manager, Media Relations, National Australia Bank Limited T (02) 9966 3035 M 0400 305 446

Kristen Allen Media Advisor, MLC National Australia Bank Limited T (02) 9957 8580 M 0412 759 753

* The information contained in this media release is for media advice purposes only. The contents are true and correct at time of publishing/issuing, however may change over time. For further information about NAB products or rates, please go to Interest Rates, Fees & Charges