MARKET STUDY: Investors who carefully consider both return and risk in their investment decisions tend to do better in the long term.
The financial crisis of 2008 triggered a recession and dramatic drop in stock markets around the world. In many parts of the world, the unemployment level soared and many investors suffered significant setbacks to their savings and net worth.
It is no wonder that most investors felt scared or confused during that time.
If there was one lesson that came out of the crises it should be that investors should focus on their financial well-being so that 'scared and confused' is replaced by 'confident and prepared'.
Whether it is saving more, reviewing regularly your asset allocation or frequently getting in touch with a certified financial adviser, these are some of the ways to get you to breathe easier should markets tumble again.
Who he plans has control.
So the question is what it takes to have control over one's finances. The short answer is planning.
Research found that many investors around the world blamed — and still do — the crises on banks and lenders.
The fact is the responsibility to prepare is solely the investor's.
Saving more and becoming more knowledgeable about one's finances is the first step to taking control.
How can you take control?
Consider these 4 steps to take control and strengthen your personal finances:
1. Save smarter for your future & retirement
While we can't control the markets, we can improve our saving habits and this can pay off big in the future. A recent survey by the National Bonds GCC Savings Index found that 72% of Saudis are not saving regularly and that a whopping 92% believe they are not saving enough for retirement. However this ominous habit of 'failure to save' doesn't have to be the norm. People can take charge of their financial well-being by doing a number of things such as signing up in their workplace savings plan or opening up individual savings accounts available in the market.
Saving more can make a big difference
The trick is to find a way to encourage you to save regularly. One of the best ways is opening a savings account with automatic deductions. Disciplined and regular savings no matter how small can have a big impact on your future lifestyle at and after retirement.
One good way to get you started is to enroll in your workplace savings plan if and when available. For most people, the number one priority should be to contribute enough to collect the company matching. Not doing so means leaving free money behind.
2. Prepare for the unexpected
Having enough savings to help with unexpected emergencies can help you keep your long-term investments on track. Experts recommend that people keep at least six to eight months of cash stashed away in highly liquid accounts such as money market funds. Using your retirement funds to pay for unexpected expenses can push you back months or even years – something you want to avoid particularly if you are nearing retirement.
3. Rethink risk
Investors who carefully consider both return and risk in their investment decisions tend to do better in the long term. Focusing only on return can get investors in trouble and potentially big loses they may not be prepared to sustain. Likewise, focusing only on risk may cost investors legitimate investment opportunities for wealth growth.
Even the savviest investors may have felt sick in the stomach as they watched the financial crisis evaporate their portfolio wealth. Thus, many investors — as a knee-jerk reaction- either hurriedly exited the market or arbitrarily shifted to a more conservative investment mix. However, those who stuck with their balanced plan and stayed in the market may have reason to celebrate. Although they may have lost more at the start of the crises, they benefited from the 64 percent rise in Tadawul since
In contrast, those investors who fled the stock market for the apparent safety of cash or low-return investments may have missed out on that recovery.
To help ride out market fluctuations, consider the following suggestions:
• Have a strategy that you can stick with for the long term which caters to both, your needs and risk appetite
• Consider making regular monthly contributions to your plan— no matter what the market is doing
• Review your plan at least annually and rebalance if necessary based on market conditions.
4. Don't go it alone
One last lesson from the downturn is that investors do not have to go it alone. To help take off the guesswork and the pressures of managing investments in a volatile market, investors may consider having their portfolios professionally managed with a focus on their risk appetite and long-term objectives. Professional wealth management services provide benefits such as diversification, exposure to various asset classes and investment styles all in one portfolio.
Taking these steps to heart should make investors more prepared than scared should the market tumble again.
— Khaled Almushare is VP, Head of Wealth & Asset Management Marketing / NCB Capital — ncbc.com
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