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Lessons from the GFC

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The famous banker J.P. Morgan once claimed that the only certainty about the stock market is that “it will fluctuate”. The recent Global Financial Crisis (GFC) is a testament to Morgan’s prediction, but what can we learn from the worst market downturn since the Great Depression?

  1. Stay diversified

  2. Concentrating your investments in a single asset class is a very risky strategy; diversification across sectors reduces risk significantly. At the lowest point of the GFC, the Australian share market was down more than 50%, while a typical diversified portfolio comprising shares, property, fixed interest and cash showed a decline of approximately 20%.

  3. Remain invested for the long term

  4. When markets fall, many investors panic and sell. This crystallises losses and prevents participation in the ensuing recovery. Markets have always regained their upward momentum, and the best defence is to hold your nerve and remain invested for the long term.

  5. Don’t try to time the markets

  6. Attempting to sell when markets are high and buy when markets are low is impossible without a crystal ball. Instead of investing your capital as a lump sum, drip feeding at regular intervals allows you to take advantage of market fluctuations, and participate in periods of growth.

  7. Seek expert advice

  8. The GFC has emphasised the need for an experienced financial adviser to guide you through the complexities of market cycles and maximise your potential for wealth creation. Stay in touch with your adviser for peace of mind through all market conditions.

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