We have been reminded of late, that sudden, sharp pull-backs in equity prices have not gone away. In fact, they have always been with us—not just lately.

Please refer to table below documenting downturns (drawdowns) since 1928-2014.  Note, this is the US market.

Downturns are normal.  I find it fascinating to watch the way our media report these events.  Please refer to the Herald Sun articles below, dated seven and a half years apart—rolling out the same bear image and downward trending line in both articles.

Unfortunately many people will panic; it is easy to see why with this sort of reporting.  People will respond counter to how they should in order to build wealth.  Just as it was in 2008, and every other downturn in history, the correct strategy is simple—hold onto your equity holdings, purchase more of them and wait for your dividends.  These times bring golden opportunities to build your portfolios and increase your dividend (income) stream.

I really recommend coming along to one of our Common Sense Investing information evenings – we talk about this kind of media hype and you’ll also learn about:

• What causes volatility and what impact it has on your long term investment strategy
• What asset class (property, shares, cash) will look after you for the long term

Register now for either Geelong or Melbourne!

By David Ramsay, CEO and Founder