short term finance

Lessons Learnt from the Sharemarket

The Global Financial Crisis was over seven years ago now but for many of those scary days have left a big impression. The Lehman Brothers Bank Collapse in September 2008 caused the Australian sharemarket to dive 25 percent in just a month and some investors suffered drastic consequences. Since the Global Financial Crisis most peoples’ investments in the sharemarket have recovered but the lessons learnt still weigh heavily.

No stock is safe. When the sharemarket as a whole plunges double digits then there is likely to be a bloodbath on almost every stock on the index. Even the strongest of industries will feel the pain.

Lessons for the Sharemarket

Diversifying your portfolio is a tried and true way to ease the pain. Spreading your money around to different stocks in different industries is going to help your portfolio from being wiped out when the market takes a turn for the worst.

Forecasts are really just guesses. Nobody really knows exactly what will happen and often the experts get it wrong. The analysts are only giving their best guesses with what knowledge they have.

You always hear that it is good to buy low and sell high, so when people are fearful and selling then you should be greedy and buy in. People who bought up shares when the sharemarket tanked in 2008 have seen enormous gains since then.

Do not gamble with your retirement. As you get older you should dial down the retirement risk. Keep your nest egg safe in investment vehicles that will not go down with the sharemarket if it sees another crisis.

If you have cash then it is losing you money. Bank accounts are paying low interest rates at the moment and keeping your cash in a savings or checking account won’t mean big savings compared to quality stocks.

Patience always pays off. Investing in quality stocks that pay dividends means that over time you can be receiving payments for your investments. As the share price goes up you also benefit from the added value of dividends. Leaving capital in big blue-chip stocks for long periods of time is a no nonsense way to have your money work for you.

It has been seven years since the sharemarket wiped out peoples’ savings and it could happen again at any time. Do not forget the lessons that every investor learned the last time the sharemarket took a dive.

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