While recent market volatility is concerning for investors, for those with a long term plan to accumulate wealth there is a silver lining. In fact, for investors who are committed to regular savings, declines in investment values could ultimately leave them in a better position.

The lower prices provide an opportunity to “buy low and sell high”. This works well with a strategy of regular savings. Commonly known as dollar cost averaging, this has long been a popular investment approach. Investing small, equal amounts regularly over time effectively ‘averages out’ your purchase price for investments.
By contributing an equal amount to an investment regularly you will buy more of an underlying investment at lower prices, and fewer at higher prices. The overall effect is to reduce the impact of volatility from investing in a volatile asset class.

This approach to saving is common in superannuation, where workers consistently add regular amounts to their investment via their contributions.

For example, the maximum employer contribution for those under 50 is $30,000. If an investment is $1 per unit, that contribution could buy 30,000 units (if tax is ignored). If due to market volatility the price fell 10% to 90c, the same contribution buys 33,333 units. As the market recovers, a greater number of units means that the investor’s fund should be worth more.

To illustrate that, let’s look at an example. We will assume that an investor puts $30,000 into an investment. In scenario 1, the investment returns are a steady 6% per annum. Over 10 years, this takes a $1 investment to $1.69. In scenario 2, we will assume that in the first year the market falls 15%, but then recovers to the same level as scenario 1 over 10 years.

As a result of the fall, in years 2 to 10, the $30,000 investment is made a lower prices that in scenario 1. This means that investor accumulates more assets, so their fund is eventually worth more. This is illustrated below;

Platform	Elston IMA	HUB24	Macquarie SMA	Praemium	Old mutual
Models Available	Blend, Growth, Income & Non-Resident Growth (Super & Non Super)	Blend (Super & Non Super)	Blend (Super & Non Super)	Blend	Blend
Asset Allocations	Conservative, Moderate, Balanced, Growth, Aggressive & Australian Equities (custom mandates available)	Conservative, Moderate, Balanced, Growth, Aggressive & Australian Equities (custom mandates available)	Balanced & High Growth (Aggressive) (custom mandates available)	Australian Equities	Australian Equities
Public or Private	Public & Private	Public & Private	Public	Private	Accredited Investors

As you can see, although the investor has gone through a period of volatility (and stress), in the long run they are better off. So for those on a regular savings plan, it is clearly best to stick with the strategy through tough periods.

Other opportunities that might exist during a market downturn include;

• A review of Asset Allocation: is the current asset mix of your portfolio going to achieve your goals? If not, this might be an opportunity to make a change.
• Investment re-structuring: Are your assets held in the right tax structure? If not, a market downturn might create an opportunity to move assets with lesser capital gains tax consequences.

For those building assets for the future, a market downturn need not be a major roadblock. With the right strategy, it should only be a speed hump on the way to completing the journey.

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If you would like more information please call 1300 ELSTON or email info@elston.com.au and an adviser will be in touch.