Stock market turmoil: four golden rules for investors to remember

As turmoil and uncertainty sweeps global financial markets, it’s wise to remember some key rules that can lessen the mental pain.

Wow, that was fast.

In less than a month, US stocks went from near-record highs to sinking quickly into correction territory, and Aussie shares aren’t far behind.

Late last week the S&P500 index of US companies extended its drop since February 19 beyond 10 per cent, amid rising recession fears. The tech-focused Nasdaq index was doing worse, down about 14 per cent from recent record highs.

Australian companies cannot escape when sickness strikes Wall Street, and the S&P/ASX 200 Index’s fall on Friday sent it 10 per cent below its mid-February record high. It recovered some lost ground on Monday morning, bouncing back 0.7 per cent.

This volatility is not over yet, and for the share market’s relative newcomers, it could become the worst downturn they have experienced.

The Covid crash in March 2020 was much steeper – around 30 per cent – but back then most people were worrying about bigger things than their share portfolios and super balances.

Older hands remember the Global Financial Crisis of 2008 and 2009 when Aussie and US stocks each fell more than 50 per cent.

US stock markets have plunged in recent weeks, and the world followed. Picture: AFP

More than half of Australians own direct shares or exchange traded funds, and millions more have indirect exposure through superannuation.

For many direct share investors, their current falls are worse than the overall market because they have bought into the most world’s most popular stocks such as NVIDIA and Tesla. For the record, Tesla’s share price halved between December and March NVIDIA was down 22 per cent since January before Friday night’s 5 per cent rebound.

As global financial turmoil gets turbocharged by geopolitical worries, there are still concerns that markets could continue falling.

If you’re really worried about the impact on your assets, remember these golden rules.

1 RELAX

Shares are a long-term investment and sharp rises and falls are normal. They have always bounced back stronger than before their downturns, and the biggest losers are often those who panic-sell when things get scary.

You generally only lose big money on investments if you sell when fear has smashed everything.

Billionaire investor Warren Buffett famously urged people to be fearful when others are greedy and greedy when others are fearful. That advice still holds true, but perhaps wait for the current climate to develop a little more before diving in too deep right now.

2 KNOW YOUR COMPANIES

A good company’s share price may be falling but its business is the same as it was a few weeks ago when markets were riding high.

Today’s only difference is that fear has been driving prices.

If you know that your money is invested in quality companies with good management, a solid outlook and a history of profit growth, you have nothing to worry about.

3 REMEMBER INCOME

Share prices can fall sharply but it’s rare to see a company’s dividends slide lower during market turmoil. And for retirees and others who rely on dividend income to prop up their wealth, that’s great news.

During the GFC, most major companies made only minor changes to dividends and the income continued flowing.

Personal income is important too. If you can cover your household costs, your long-term share investments can largely be left alone.

4 DON’T FREAK OUT ABOUT SUPER

Superannuation is the longest-term investment most of us have, usually lasting several decades.

The last thing you would want to do now is check your super balance after a sharp fall, because it will be down for most of us.

The biggest super losers in the GFC and Covid were those who panicked and switched to more conservative super options, then missed out on the inevitable rebounds.

Originally published as Stock market turmoil: four golden rules for investors to remember