Following the events of 2008, many investors have understandably shied away from the sharemarket. However, don't let the experience of the past eighteen months keep you from achieving your goal of financial security in retirement.
This article discusses how we can move forward following the worst of the crisis.

Now's the time to start thinking about rebuilding your portfolio, to make sure it's well-positioned for the recovery and fortified against any future downturns.

Our investment experience tells us that we're currently between the survival and rebuilding stages. Local and global government stimulus packages and the easing of interest rates are the first steps for moving us from crisis to recovery.

To put the final touch on our storm analogy, we believe we've transitioned from an environment in which gale force winds were threatening to blow our collective roofs off, to one that can still be fairly wet and cold, but liveable nonetheless.

Taking baby steps to rebuild your portfolio
If you sold shares over the past year and are trying to decide how and when to reinvest, we recommend dollar cost averaging, an investment strategy that eases you back into the market.

Dollar cost averaging is a technique designed to reduce timing risk by investing a set amount at predetermined intervals regardless of fluctuating price levels. More shares are purchased when prices are low, and fewer shares are bought when prices are high. The goal is to lessen the risk of investing a large amount in a single investment at the wrong time. We believe the strategy makes more sense than waiting for signs of a market turnaround and potentially missing significant market surges.

Fortifying your investment
Nobody knows where the markets will be tomorrow, let alone in a year. What we are certain of is this: suitable asset allocation and regular portfolio rebalancing remain two important techniques to help manage risk and enhance your returns.

• Asset allocation
It's important to stay in the sharemarket, despite its constant ups and downs. But it's just as important to have the right mix of shares, bonds and other assets for your age, objectives and expectations for returns.

As an investor, one of the most important questions to ask is this: will my asset allocation provide me with the income to support the standard of living I'm hoping for in retirement? While it may be tempting to change your asset allocation due to recent market events (either increasing or decreasing shares exposure), it's unwise to do so outside of extreme circumstances.

• Portfolio rebalancing
When investment markets perform as they have over the past year, one result is that your balance of shares and bonds has probably deviated dramatically from its intended target, becoming underweighted in shares and overweighted in bonds.

The purpose of rebalancing is to ensure that your portfolio maintains its long-term asset allocation. This is done by periodically eliminating deviations from the target allocation caused by the movements of the investment markets.

With the recent decrease in market volatility, now may be a good time to rebalance your portfolio in order to re-establish your optimal asset allocation mix.

The aftermath: can you afford not to invest?
In the aftermath of the greatest financial storm since the Great Depression, investors will need to understand that just as past performance was no guarantee of future results in good times, the same holds true in bad. Don't make the mistake of relying too heavily on what happened in the recent past when it comes to predicting the future. Unless you already have all the money you'll need to fund your retirement, you still need to be invested in growth assets (like property and shares) in order to reach your goals.

The level at which you set your exposure to defensive assets is a decision that should be based on your needs and goals, not just on how much risk you can tolerate.

Finally, what matters most is not how you feel about investing, but rather how you can make use of the investment markets, in both stormy and sunny times, to accomplish one of your most important goals of all - not outliving your nest egg.

Ask a GTM Financial adviser today if you can afford not to invest.

Source: Russell Investments

General Advice Warning
"This advice is of a general nature only and does not take into account your circumstances or needs. You must decide if this information is suitable to your personal situation or seek advice. Prior to investing in any particular product, you should read the Product Disclosure Statement."