Despite the best efforts of world leaders, stock markets continue to roller coaster and at the moment there seems to be more downhill runs than uphill climbs.    Recently we saw a massive sell off in global share markets, the likes of which we have not seen since 1987.

Without being alarmist, it has not been fun ride for those who have chosen to stick it out in the share market.  For many, shares are now just trash to be offloaded as quickly as possible before any more losses are made.  No doubt there are many people who have lost lots of money by selling during this period of extreme volatility.  I doubt if many of those people will ever recoup those losses.  Many will be first time investors into the markets and most likely will never re-enter the markets again – or unfortunately only enter when they peak next time and will no doubt go through this same phase again.

Many who have sold out have invested their money in cash, believing this is a safe option.   For spooked investors, there is no doubt that cash offers an alternative but is it really the treasure they believe it to be?  Cash pays virtually nothing and depreciates in value as inflation and tax eat into it.  Market Metrics 2008 produced by the Commonwealth Bank notes that cash also has additional hidden costs such as capital gains tax or capital losses if assets have been sold to make the switch. 

The Bank also notes that for those who sold their shares during this period of volatility, by the end of 2010 they will be worse off if the market recovers to its previous peak.  Now I haven’t the foggiest as to where the markets will be in one week, one month or in a year’s time, but what I do know is that share markets will rise again, and history has shown that when markets rise they often rise rapidly and in substantial leaps.

So while today’s share market may be just trash to some, smart investors know that a volatile share market is a potential treasure as it offers opportunities to buy shares at discounted prices.  Yes things are bad, but now is the time when smart actions will see smart investors reap the rewards of the recovery that will happen – it has to, just as all good things come to an end, so do bad things.

 Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

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