Investment markets are always volatile in the short term

The recent volatility in the Australian sharemarket is typical of what can happen in investment markets. It’s part and parcel of being an investor and, as long as you have high quality investments and you are a long term investor, it is usually nothing to worry about.

In fact, all investment markets suffer from volatility. Even a high-security investment like bonds can give you a negative return from time to time, as shown below.

What is investment volatility?

Investment volatility is the risk of the value of your investment moving up and down. With high quality investments, their values should move up more than they go down. Investments which are expected to produce higher long term returns (such as shares) tend to experience higher levels of short term volatility. On the other hand, investments which are expected to generate lower long term returns (such as bonds) usually experience less volatility in the short term.

This can be seen in the charts below which show the range of historical returns for various asset classes over various periods, as well as their long term average returns (after inflation). As you can see, the longer your hold your investments the less they are affected by volatility. For example, the range of returns for Australian Shares in any single year has been -42.6% to 58.2%. However, the range for 10-year periods has been 2.9% to 14.6% p.a.

Charts_Line

Disclaimer: This article is not legal advice and should not be relied on as such. Any advice in this document is general advice only and does not take into account the objectives, financial situation or needs of any particular person. You should obtain financial advice relevant to your circumstances before making investment decisions. Where a particular financial product is mentioned you should consider the Product Disclosure Statement before making any decisions in relation to the product. Whilst every care has been taken in the preparation of this information, Australian Unity Personal Financial Services Ltd does not guarantee the accuracy or completeness of the information. Australian Unity Personal Financial Services Ltd does not guarantee any particular outcome or future performance. Australian Unity Personal Financial Services Ltd is a registered tax (financial) adviser. Any views expressed are those of the author and do not represent the views of Australian Unity Personal Financial Services Ltd. If you intend to rely on any tax advice in this document you should seek advice from a tax professional. Australian Unity Personal Financial Services Ltd ABN 26 098 725 145, AFSL & Australian Credit Licence No. 234459, 114 Albert Road, South Melbourne, VIC 3205. This document produced in July 2015. © Copyright 2015