An urge to do something - anything

Countless investors understandably feel a hard-to-resist urge to take some decisive action whenever the sharemarket turns highly volatile.

Such urges-to-act are likely to have been particularly strong in recent days in response to what's been happening on the local and global sharemarkets - as well as in reaction to the more dramatic media headlines.

Unfortunately, this often leads to hasty, poorly-informed and emotionally-driven investment decisions that may be against an investor's own interests.

As personal finance columnist Ron Lieber writes in The New York Times this week. "The impulse when the stock market falls hard for a few days in a row is to do something. Anything." This common investor trait has also been closely observed over the years by behavioural economists.

Lieber suggest that "some deep breaths" are in order rather than a rush to action.

His article makes a series of salient points including: the sharp fall in share prices highlights the attributes of diversified portfolios, investors have generally done well from shares in recent years, and a switch to an all-cash portfolio is often detrimental.

"Plenty of research shows that if you miss just a few days of the market's biggest gains, your long-term portfolio will suffer badly," Lieber warns.

And he asks: "If you decide to put a bunch of your money in cash on Monday, how will you know when to get back into the market? You'll probably be looking for a sign, and that sign will be the very rebound days that you will have missed out on."

Investors who are facing an urge-to-act can take several steps that do not necessarily involve selling shares at a possible low and locking in their on-paper losses.

Such actions may involve turning to a quality financial planner as a behavioural coach to encourage disciplined, non-emotional investment decisions that focus on your long-term goals rather than on short-term market volatility.

Over the past 14 years, Vanguard in the US and Australia has studied so-called "adviser's alpha". This is the value that good advisers can add through their wealth management and financial planning skills - guiding their clients in such areas as asset allocation, cost and tax efficiency, and portfolio rebalancing - and as behavioural coaches.

Rather than falling into the trap of trying time the markets - that is, attempting to pick the best times to sell or buy securities - a smart move is to ensure that your portfolio is as efficient and appropriate as possible. That's decisive action that won't be against your best interests.