It seems that almost every day we wake to more news about economic upheaval in places like Greece and Italy, and fears about the stability of the global economy are hard to ignore. Does this mean that people should “wait and see” before making investment decisions.

An increasing number of respected economic commentators are now saying that heightened market volatility is the “new normal”. As such, if you are taking a “wait and see” position then it is likely that you will be waiting a very long time. Experienced investors often say that volatility creates opportunity and there are undoubtedly some outstanding opportunities out there. I have been surprised that recent opportunities – such as 6% NET return on freehold waterside land – have not been snapped up like they would several years ago.

Regardless of the drivers, heightened volatility requires investors to exercise specific investment strategies. While many of these strategies are basic investing concepts that can be applied any time, they are particularly important in a volatile environment.

Don’t follow the herd. It’s an old cliché but it still holds true – many investors generally buy into the market too late and they sell too soon. Unfortunately they tend to take the lead from the media and generally, by the time that you read that the market has “taken off” in the newspapers it is normally too late!

Keep a long-term perspective. It is all too easy to get caught up in the market’s daily roller-coaster ride. This type of behaviour is natural, but can easily lead to bad or no decisions. Instead, focus on whether your long-term performance objectives, i.e., your average returns over time, are meeting your goals. Property, in particular, is a long-term investment and if you don’t have a perspective of at least 5 years then you are probably best to consider other investment types.

Take advantage of asset allocation. During volatile times, more risky asset classes such as stocks tend to fluctuate more, while lower-risk assets such as property, bonds or cash tend to be more stable. By allocating your investments among these different asset classes, you can help smooth out the short-term ups and downs.

Consider buying opportunities. Although you may be rightfully gun shy in the wake of the recent market turmoil, one strategy you should seriously consider is selectively adding to your investment portfolio. This is especially true when prices are low versus historical averages.

Do Your Homework. It is important to ensure that you are making a fully informed decision. While there is no such thing as a “sure bet” in any market, there are certain fundamental checks, for each investment type, that be applied to manage risk.

Financial Analysis. Take the time to analyse all opportunities using assumptions that you are comfortable with. I generally use reasonably comprehensive spread-sheet modelling that makes it relatively easy to project the financial merits of an investment across a number of scenarios. Consider the earlier example of a freehold land title earning 6% ‘lease’ return. On the face of it, 6% doesn’t seem much more than current bank deposit rates. However, because the lease is reviewed (upwards only) in line with the underlying property value, the return also increases. So, an investment of $100,000 returning $6,000 (6%) in year 1 could be earning $12,000 in year 10 if the property has doubled in value. Average that out over 10 years and the average cash return on the original amount invested is approximately 9%. If inflation takes off within the next year or so as some are predicting, then this might well be significantly more. This is an overly simplistic example but it does illustrate the benefit of doing the numbers.

I am often being presented with very good long-term property opportunities. You can check out some of these on my website or, better still, contact me to have a chat about what you are trying to achieve.