Look beyond this nasty year for shares and remember GFC lessons

Weakness in Australian and overseas shares have investors feeling wobbly as we head into a new year. But it’s all been seen before, and some key lessons are worth remembering.

Well, investors, it’s been an ugly 2018.

The past few months have been some of the worst in a long time for Aussies with shares, managed funds and super. Ugly enough to make onions cry, and if it went to the beach cats would try to bury it in the sand.

Aussie shares have sunk 12 per cent since September, the US sharemarket has erased most of its gains of the past two years and other overseas stockmarkets are doing even worse.

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This dummy spit by financial markets may continue into 2019, but no matter what happens, many investors are wiser than they were before the Global Financial Crisis struck in 2008.

In late 2007 our sharemarket dropped 5 per cent. A year later it had tumbled another 45 per cent.

That collapse is painfully seared in the memories of many investors and retirees, and It’s worth recapping some of the key lessons learned from it.

1. STICK WITH YOUR STRATEGY

Buying shares willy-nilly is a ticket to financial pain, because most people will follow the herd and buy up big when share prices are surging, only to sell when they are at their weakest.

During the GFC many investors abandoned their long-term strategy and sold everything right at the bottom of the market, only to miss out on its 55 per cent rise over the following seven months.

It’s been a sea of red on stock exchanges since September, and investors need cool heads.

f you can’t sleep at night because falling share prices are freaking you out, perhaps it’s time to look at some lower-risk investment options.

But if you’ve got time on your side and understand that markets naturally move in cycles, it could be a good time to grab some shares at bargain prices.

2. CHOOSE QUALITY

Great companies will make money in good times and bad times. Look for stocks with a long track record of growing profits and paying rising dividends. Professional help from an adviser or stockbroker can be a big benefit here.

Dividends add extra security to your investment portfolio because you are still receiving an income amid short-term share price volatility.

But don’t simply chase high dividends. Sometimes a company may be paying a dividend yield of 8-10 per cent because its business is in trouble and its share price has fallen so hard that last year’s dividend remains in the yield calculation.

3. SPREAD YOUR MONEY AROUND

Diversification has never been more important. People who only owned Aussie shares over the past decade got lower returns than those who had diversified overseas where giants such as Apple and Amazon boomed.

Now, with financial markets much more volatile, it may be wise to diversify even more — into areas including infrastructure, commercial property, corporate bonds and other alternative investments.

You won’t avoid pain if we suffer a broad downturn like we did in the GFC. But not having all your eggs in one basket will protect you if the basket gets stomped on.

Remembering lessons from history — in this case just 10 years ago — can help us better navigate our investment futures.

@keanemoney

Originally published as Look beyond this nasty year for shares and remember GFC lessons