What to do when markets fall

Posted 22 March 2022

It’s natural to find turbulence in investments markets unsettling. Unless you're invested in Cash, you will have seen your balance reduce since the beginning of the year. This, in itself, is no cause for alarm. In most cases, the best course of action will be to do nothing. If you’re invested for the long-term, you have time to ride out the highs and lows associated particularly with growth investments like shares.

Think of it this way. You’ve owned a house for a number of years and seen it rise steadily in value. Then its market value drops by 10% over a short period. You might be a little rattled, but would you sell it if you didn’t need to? Chances are you’d see it as a long-term hold. You’d be in no hurry to sell when the market was down.

We all follow changes in the value of our home, but we know it’s the price we get when we come to sell that matters. It’s the same with your investments in UniSaver. The market value of your investments might be falling but you’re only losing money ‘on paper’. If you switch to a fund with fewer growth assets that fall in value becomes real. Switching to a lower risk fund crystallises your losses. It means you forgo the opportunity to benefit from the upswing if and when markets rally. And historically share markets always have.

However, that could take time. If you are thinking of withdrawing your money in the near future for retirement or a first home, you need to consider that the value of your investments may be reduced if markets weaken further. As you approach a life milestone, you may wish to alter your investment options to better reflect your risk profile. 

It’s worth noting that there is one potential upside to investing during a market downturn. Your contributions to UniSaver are used to buy units in the option you’re investing in. When the unit price falls, your contributions buy more units. This in turn lowers the average cost you have paid for units in the fund for the time you’ve been investing. Technically, this is called dollar cost averaging.

Changing investment options, especially during times of market volatility is a significant decision. If you are unsure what to do we suggest you talk to a licensed Financial Advice Provider who can provide guidance based on your individual circumstances. The Financial Markets Authority’s website includes information to help you find an adviser[external link]You might find our risk profiler [external link] a useful tool to help you review your investment strategy.

What’s behind the current market volatility?

As well as being a human tragedy for the people of Ukraine, Russia’s military actions are sending economic shockwaves around the world. Share prices have seen significant volatility as news of these actions has unfolded. The escalation of the Ukraine crisis comes on top of an already shaky start to the year for sharemarkets as central banks move to raise interest rates in an attempt to combat rising inflation rates. It’s hard to know how it will play out. Russia’s military actions have seen oil and gas prices rise sharply and higher energy prices will exacerbate an already-deteriorating outlook for inflation. However, they are also likely to slow economic growth creating a dilemma for central banks as they weigh up further interest rate rises.

This market update [external link] from our investment manager Russell Investments examines the impact of the Ukraine crisis on the European economy.