The financial landscape of 2023 has shown significant market volatility, which has caused varying responses from investors. A difference is observed between young investors, who are in a wealth accumulation phase, and retirees, who are navigating the phase of wealth disbursement.
Market volatility can either unfold as a point of opportunity or signal a strategic re-evaluation, depending on the future of your portfolio.
Investors can be categorised as net buyers or net sellers based on their current financial strategies and life stages. Net buyers, predominantly younger investors, are in the phase of building and expanding their investment portfolios. For net buyers eyeing a long-term investment horizon, short-term declines should not be a cause for concern. Instead, if the investment rationale remains intact, these declines should be viewed as opportunities to lower the cost base, particularly if the intent is to continue the purchase over the long term.
Conversely, net sellers, often retirees or those nearing retirement, may find themselves in the phase of drawing down their investments to sustain their living expenses. A market decline for them could signify a reduction in the value of their assets, potentially impacting their financial security.
However, with prudent financial planning and asset allocation, net sellers can manage market downturns without undue distress.
Market downturns are inevitable, but it shouldn’t be at that point when a mature investor is rushing to recalibrate their asset allocation to preserve their capital required for living. Their asset allocation should already be set so that, when market downturns hit, they are shielded and don’t need to worry about their portfolio being eroded to a point they can no longer afford their living expenses.
The contrast of net buyers and net sellers illuminates how market conditions can have contrasting implications for different cohorts of investors. Navigating market volatility with a clear understanding of an investor’s financial strategy and adapting to evolving market dynamics are essential for protecting and growing wealth, irrespective of being a net buyer or a net seller.
This article was first published in the 2023-34 Summer Issue of Financial Times.