Beware fear mongers

Investors should not let market fear mongers derail their investment decisions, according to a senior Russell Investment Group financial strategist.

Speaking at the ‘Meet the Manager’ luncheon in Melbourne, Russell senior portfolio strategist Steven Wood encouraged investors to stay the course and not let their investment strategies be derailed by “fear masquerading as formal analysis” in today’s volatile markets.

Wood said history showed equities would invariably continue to outperform bonds over time, so long-term investing and diversification remained the best strategies for investors.

“In the current market, with no shortage of bad news … the extreme ‘doomsday scenarios’ being bandied about lately are causing many in the investment community to consider these outlier events, such as the sub-prime crisis, as normal occurrences that should be incorporated into investment strategies, which is a terrible methodology to adopt for investors in the long term,” he said.

“This causes investors to suffer, because they become locked into an extremely low probability payoff structure.”

According to Wood, investors tend to fare much better when they rely on long-term investment strategies that offer diversification based on an investor’s risk profile but do not attempt to time the market.

“If you compare the present market situation to difficult markets of the past, such as the Great Depression and World War II, investors with a long-term focus should not be as concerned about this market, despite pundits’ protestations to the contrary.”