Understanding volatility

Investment markets move in cycles. They can vary from providing strong returns year after year to a sudden drop, which can be quite alarming for investors.

There are many factors that drive these movements, as evidenced by the volatility in the Australian share market, brought about by the 'sub-prime' mortgage crisis in the United States.

However, markets do recover. The chart below demonstrates the decline and recovery of markets that were affected by Australian and world events.

An investment plan can help minimise the impacts of market volatility, and should be designed to meet your long-term goals and help your investments remain on track. An investment plan should take the following fundamentals into consideration:

• Time in the market may help to ride out the lows, and in the long run, maximise the value of your investment...more information on time in the market.
• Dollar cost averaging means investing a fixed sum over regular intervals regardless of where investment markets are heading...more information on dollar cost averaging.
• Diversification ensures your investment dollar is spread across a range of investments in line with your investment objectives...more information on diversification.

For more information on these and other strategies, download a fact sheet.

Remember, in times of uncertainty:

• don't panic
• revisit your investment goals
• align your investments to meet your goals
• ensure your portfolio is diversified
• speak to a financial professional, such as an ANZ Financial Planner.

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