Financial markets have experienced a significant rise over the past year, with some market indices delivering returns exceeding 20%. For those who weren’t invested ahead of this rally, it can feel like the right moment to invest has already passed. Speaking with Ryan Bridge, Milford Client Manager John Bailey explains why focusing solely on timing can lead to missed opportunities.
Watch.
Listen.
Click here to download the MP3 file or listen to the podcast on your favourite platform:
Read.
Bridge talks Business: 25 February 2025
Episode Transcript
Ryan Bridge
Kia ora, this is Episode 22 of Bridge talks Business with Milford. Stock markets have been going gangbusters recently. The S&P 500 in the US was up a whopping 23% over the past year. Japan’s leading index, 20%. Some European indices are already up more than 10% this year, and it’s only February. Now, depending on your personality type, you’ll look at that and you’ll think, “Oh great, I’ll invest now, I’ll jump on board.” Or you might think, “Damn it, I’ve missed out, I’ve missed the boat.” Today, we’re asking a Milford expert about timing your investments. First though, here’s your top five business bits from the past week.
1. Some early signs of a slowdown in the US. Global business surveys last week pointed to a potential weakening from strong growth over the past few years, but these surveys are fickle. We’ll await hard data before reaching conclusions.
2. Europe’s feeling good, Europe’s feeling great. They’re optimistic about growth recovery. This has been helped by that German election at the weekend. The result was in the centre. No need to swing too hard to the right or to the left.
3. Down under, the Aussie labour market is strengthening, while Kiwi retail sales data for the December quarter improved, but it was still off a low base. Those rate cuts on both sides of the Tasman should speed things up.
4. Both our share markets have been hit with big share sell-offs. In Australia, Goodman Group sold $4 billion worth of shares. Here, Ryman is selling $1 billion worth to get debt down.
5. The big dog on Wall Street reports results. It’s the largest stock in the world, worth enough to move entire markets. Nvidia, the AI chipmaker, has traded sideways since June last year, so investors are watching this one very closely.
If you’re anything like me, you’ve got a big mortgage. And finally, we’re starting to get some relief on the mortgage front with the OCR coming down. And you might be wondering, what do I do with that extra money that’s going to be coming into my pocket? Do I go out and buy a new car? Do I go and buy a jet ski? Or do I start investing some of that money for my future? And if I am going to invest, have I missed the market? We just spoke about some of those indices that have shot up over the last year. Have I timed it wrong? Well, that’s the question we’re looking at today. And don’t forget that this segment is informational only and should not be considered financial advice. I’m joined by Milford’s Client Manager, John Bailey. John, g’day, welcome to the podcast.
John Bailey
Hi, Ryan. It’s good to be here.
Ryan Bridge
Good to have you here. So, first question, have I missed the time? Have I timed this completely wrong?
John Bailey
No, I mean, you haven’t timed anything wrong. I mean, market timing, what is it? It’s where you try to forecast future returns on markets and then make an investment decision, whether it be depositing or withdrawing, based on those predictions. And I just want to stop there and say, you know, no one has a crystal ball. So, while it’s all well and good to say, you know, “I want to buy low and sell high”. In reality, even experienced investors find it incredibly difficult to time markets consistently.
Ryan Bridge
You wrote a blog about this. This is why, and it’s come to my attention, which is why I’ve got you here. I want to talk. Why, first of all, did you want to write this blog? What prompted you to do it?
John Bailey
Yeah, so I’ve been receiving a lot of client contacts around 2024 when we had really strong performance. Have I missed the boat? Am I about to invest the sum of money, whether it be from a liquidity event like selling a house or selling a business? Or maybe it’s just a term deposit that’s rolled off and you want something a little bit better than cash. So, getting a lot of clients’ queries around, “Have I missed the boat? Am I about to turn my money into less money because of what’s going on around the world?” And I thought if I wrote a blog enhancing a little bit of financial education, saying, “Well, you know, timing markets is actually very, very difficult. But there are a number of strategies that we can use to mitigate some of that timing risk.”
Ryan Bridge
Yeah, tell us about some of those strategies because I found them really interesting. And I think our audience will hopefully appreciate some of them too. Because, I guess depending on your personality, you might look at this and go, “Oh, well, the market’s been going really well, I’ll jump on board now and I’ll ride that wave”. Or if you’re maybe more of a pessimistic person, you’ll think exactly that, “I’ve missed the boat. What is the point now”?
John Bailey
Yeah, we’re definitely getting a lot of both. But you know, one simple and effective strategy is dollar cost averaging. So, what dollar cost averaging is, is you’re investing a fixed amount of money at regular time intervals. And what that does is you’re investing over a time span, reducing the impact of any market fluctuations that may happen over the course of your time span. The only drawback of dollar cost averaging is that it actually doesn’t maximise returns in a consistently rising market, because you’re constantly buying it at a higher price. However, as long term investors, you and I probably both know that you will expect to have or experience some market volatility throughout the course of your investment’s journey. And so, dollar cost averaging is a really valuable tool that clients can use to mitigate some timing risk.
Ryan Bridge
And what’s the average length of time that people want to invest for?
John Bailey
That really depends on your financial goals, or your time frame could be completely different. In fact, every investor is unique, which is fantastic and amazing. But your time frame could be quite conservative. It could be something very short term – one to three years, or it could be middle of the range – a bit more balanced is five to six years. And then anything longer than, say, seven to eight years is considered a long-term time frame.
Ryan Bridge
So, if I come to you and I say, “Look, I want to use some of this dollar cost averaging, I want to get rich quickly, and the market is maybe coming off its peak”. Can you get me rich quick in a downturn?
John Bailey
Well, the strategy is used to just mitigate some timing risk. I’m not in control. I don’t have that crystal ball, like I said, about what markets are going to do. But it can help mitigate some of that risk and take some of that volatility off the table, which is always nice for your overall investment. We do have an advice service where you can sit down with a financial adviser and go through your entire situation in a bit more depth, and then they can create you a bit more of a bespoke portfolio based on your particular financial situation. So that’s always available.
Ryan Bridge
How much money do you need to invest? Because I always think, “Oh, I need to save. I don’t know why, but I always feel like I have to save a certain amount of money before I can go to a Milford and say, I’m ready to invest my money. Now that I say that out loud, it sounds stupid because you’re probably better off having that money invested as soon as it becomes available.
John Bailey
Yeah, you’re absolutely not the only one, Ryan. You can actually invest with Milford and open up any one of our funds for as little as $1,000. If you can save up to $1,000, you can invest that money. It’s very similar to how your KiwiSaver operates. In fact, your KiwiSaver uses the dollar cost averaging technique. Every week or fortnight you get your pay packet and a little bit of that goes into your KiwiSaver through your employer and employee contribution. So, that is essentially taking the timing risk out of your KiwiSaver investment by just dripping a little bit in every so often. You’ll see how large your KiwiSaver builds up over time, and how kind of fast it does.
Ryan Bridge
And if I come in with perhaps a smaller investment or a smaller amount that I want invested, obviously, timeframe is one thing, but another thing is what stocks that that’s been invested in, right? And much like KiwiSaver, there are different funds that the money could be invested in with Milford.
John Bailey
So, instead of focusing on timing the market, I think investors could concentrate more on just investing in a diversified portfolio. Diversified investments will help you in two ways. They actually reduce the amount of risk that you’re taking with your investments, because not all your eggs are in one basket. You’ve taken some of that risk off the table, that concentration risk. And then secondly you should have a more stable return over time. Instead of having it whip soaring around positive, negative, you’ll have a slow but steady return.
Ryan Bridge
John, how does it work if I go and invest a certain amount with Milford, it’s obviously the returns are increasing every year, you know, in theory, so when do I get the money back or does it keep getting invested and make more?
John Bailey
Well, the beauty of staying invested is that you get to take control of compounding returns. So compounding returns occurs when your investment returns start to generate their own returns, creating this kind of snowball effect. One of the critical components of any kind of wealth creation is remaining invested and allowing compounding returns to start working for you. Warren Buffett said that compounding returns is the eighth wonder of the world. You can take your money out at any stage, as long as it’s not within the KiwiSaver realm, but the longer you have it in there, theoretically the more time you’re giving it to cook, and the more you’ll be taking control of these compounding returns – which is quite powerful.
Ryan Bridge
John, it’s been great talking to you. I feel like I’ve learned a lot and I’m just going to go in there. It doesn’t matter how much I’ve got. I’m going to get in there and just get the money invested as soon as I can.
John Bailey
Go for it, Ryan.
Ryan Bridge
Thanks so much. Good to have you on the programme. That’s John Bailey. He’s a Client Manager at Milford, talking to us about timing the market. And if you can’t time the market, if you haven’t timed the market right or you feel like you can’t, there are some strategies that outfits like Milford employ to try and mitigate some of that risk. So, get in touch with them. That’s it for today’s podcast. Thanks so much for listening. Don’t forget you can like, follow, subscribe wherever you like to listen to and watch your podcasts. I’m Ryan Bridge. See you next week.
Missed last week’s episode? Don’t worry! Click here to catch up now.
