Investing may be a long-game, but how do you stand firm when the ground is shaky? Milford Head of Wealth Management and Advice, Phil Morgan Rees, talks with Ryan Bridge about what investors can do to stay the course when markets are volatile.

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Bridge talks Business: 25 March 2025
Episode Transcript

Ryan Bridge
Kia ora and welcome to Episode 26 of Bridge talks Business with Milford. This week we’re catching up with Head of Wealth Management and Advice, Phil Morgan Rees. You might remember we spoke to him a while back – we talked about retirement. How much money do you need to get by if you want a basic necessities retirement, and how much would you need to live comfortably? You can check out that episode wherever you get your podcasts. But this week, if you’re wondering what investing strategy is right for you during this very volatile period in the markets, then you’re in luck. Phil has more than 30 years’ experience in wealth management and he’s here to answer our questions. First, here’s your top five business bits.

1. A modest recovery for US share markets last week after four straight weeks of declines. Some welcome respite for investors.
2. The US Fed held interest rates on hold as expected, but their forecast painted a picture of slowing economic growth and stickier inflation. Chair Jerome Powell told investors not to worry, they can and will cut rates if necessary.
3. Consumers in the US are hanging in there despite the gloomy talk for now. That’s according to the latest retail sales data.
4. The German parliament has finally passed that fiscal spending package. Attention now turning to whether they can actually spend the stimulus given structural capacity constraints across the German private sector.
5. April 2nd is fast approaching. That’s the date that Trump’s administration is scheduled to announce reciprocal tariffs in an escalating trade war. Other than that, you’ll be pleased to hear, a quieter period on the economic news front this week.

This week, we’re talking about confidence. It can be hard to maintain your confidence when you’re seeing headline after headline after headline about the markets taking a dip in the United States. So, this week, we’ve got in Phil Morgan Rees. We’ve had him on the show before. He’s head of Wealth Management and Advice at Milford. To find out a little bit more about how we stay calm during these volatile times. Don’t forget this segment is informational only and should not be considered financial advice. Phil, welcome to the show.

Phil Morgan Rees
Thank you very much.

Ryan Bridge
Good to have you here. So, obviously a very different time to when we last spoke actually – market wise. How do investors in your experience feel during periods like this one?

Phil Morgan Rees
Well, generally speaking, it’s an unsettling period. It kind of comes down to whether you’re talking about an experienced investor. An experienced investor will have been here before and they’re largely unfazed. Inexperienced investors generally find it worrying, not just unsettling. And it could be because they’re investing for the first time so they don’t understand how investing works. And they could have just invested, say the end of last year and see the balances down on what they invested. In particular, we find term deposit investors, as well, would find something like this quite worrying because they’re used to a fixed period, a fixed return. The money you put in is the money you get back. Whereas what you have with investing is, you have a variable return. There’s a minimum time horizon for everything you invest in. So, you should always apply your mind to that. But you’ve got volatility. And there’s this saying which is, “Volatility is the price we pay for higher long-term returns”.

Ryan Bridge
So, it’s a little bit of uncertainty. It’s a little bit nerve-wracking. Are there any sort of strategies that you could be using or employing to put your mind at ease, that you’re still doing the right thing?

Phil Morgan Rees
There are a few things. Let’s assume that when you’ve gone into an investment, you’ve assessed your own tolerance for risk. Risk is a term that we really mainly use for volatility. How much volatility can you cope with? So, when you undertake a risk tolerance questionnaire or anything around your risk tolerance, you’re really assessing how much volatility you can cope with. So, let’s assume you’ve done that as a starting point. And then it’s a case of understanding how relevant is this thing to me? How does it affect my plan? Okay, so how relevant? If you’re concerned that a particular stock’s gone down 20%, if you don’t invest in it, it doesn’t matter, right? If you’re in a diversified portfolio, and let’s say the Aussie market has dropped 10% or 2%, let’s say, but it’s only 10% of your portfolio, that’s a 0.2% impact on your portfolio. So think of it that way. How relevant is this to me?

And then relate it to your plan. So, largely investors fall into one of three categories. You’re either accumulating, so a lot of investors in KiwiSaver are accumulating. They’ve got a long-term time horizon. For people like that, you’ve got plenty of time for markets to recover, okay? Then you’ve got people in another phase, which is pre-retirement, slightly more complicated. And that’s a period, anything up to 10 years before you start using the funds you’ve accumulated. You need to have a plan for how you liquidate your assets out of your investments. But have a look at that plan. If it doesn’t impact your plan, no need to do anything. And then in retirement, which is slightly tricky, and I know we talked about retirement last time we got together. Again, if you’re hitting a period of volatility and you’ve got a plan where you’ve already set aside what you need in terms of cash flow for the next couple of years – don’t think it’s gonna be an issue. You carry on with your plan. So, it really comes down to understanding what’s happening. Is it relevant to me? How does it impact my plan? Because pullbacks are normal.

Ryan Bridge
Yeah, I was gonna say that they do happen periodically. How long do they last?

Phil Morgan Rees
Well, look, the first thing to realise is pullbacks are a normal part of investing, right? So, when you spoke to Mark, he talked about a 10% drop in the S&P, okay? And I think he mentioned it’s one of the fastest that we’ve had. And what’s interesting is our memories can be quite short because volatility happens all the time over time. It just so happens that in 2024, we had a very good year in the S&P. So, we had over 20% returns in ‘24 and in ‘23. But the average return in the S&P is closer to about 10. So, where’s the difference? We can look back and say that there were periods of volatility even in the last couple of years. Let’s think, when the Hamas attacks caused volatility, the invasion of Russia into the Ukraine 24th of February ’22 – that caused volatility. And if we go back past that, you’d have had a greater than 10% drop in the S&P in 2018 with the trade wars. You’d have had the period at the end of 2015/16, with a bigger than 10% drop. There would have been one in 2011, one in 2010, I could go on, Ryan. There’s a GFC dotcom bubble. And when I started working in the city of London in ‘87, there’s a really big one.

So, the thing to take away is volatility is a normal part of investing, but it’s really important to understand how it impacts you, because investing is not a straight line and it’s not a smooth line, right? But it comes back to volatility is the price we pay for those better long-term returns. So that’s when planning and patience are so important. The thing to avoid is a knee-jerk reaction which could crystallize a loss. Because let’s say markets go down 10%, I think I’m gonna cash up. You’ve crystallized that loss. You’re not waiting for markets to return. Even if you say, “Oh, I’m not sure I should be this aggressive, I’ll de-risk”. You’re still crystallizing some loss because you’re not gonna recover as much if you’re not that highly pointed toward shares. So, it really comes down to planning and patience. Investing is a long-term process and we have to think long-term. And when you think about key statements, it is about time in the market. If you think fundamentally what you’re doing, you’re trying to compound something, right? When you’re investing. Let’s go back to school maths. We’re trying to compound something. Well, that actually means you have to be in there for a period of time. So, you’ve got to be allowing the money to do its work.

Ryan Bridge
Do you notice that people change their, not necessarily their strategy, but maybe they might not take the hit on a 10% drop in the S&P, for example. But it might temper the way that they invest in the future. Once bitten twice shy type thing.

Phil Morgan Rees
Absolutely. Investing is rational. Humans are emotional. There’s an entire school of science. It’s called behavioural economics or behavioural finance, devoted to it. Successful long-term investors trust in the process, but it’s not always easy. I talked about behavioural economics and behavioural finance. Most of my team of advisers study it. All the portfolio managers that you’ve met will have studied behavioural finance to understand their own biases and behaviours, and make sure that we’re following a good process. Long-term investing, it’s really important to have a good plan. Yet check in on that plan, understand exactly what’s happening, but to be successful as an investor, you have to trust the process.

Ryan Bridge
So Phil, you said it’s not a straight line. It can be a bumpy road. Do you have any data on how bumpy it can be?

Phil Morgan Rees
It isn’t a straight line and it’s not a smooth line, but research tells us that staying the course, you reap the rewards. If you’d invested in our Wealth Management Balanced Portfolio, for example, so established in November 2013, so we’ve got a good data set where from, the annual returns over that period would have been 8.71% before tax and before the advisor fee, right? But if I told you that 28% of the time, the month-on-month performance was negative, would that surprise you? If I told you there’s a negative year in that, so your annual performance would have been negative, you’d have gone, oh, that’s a bit disconcerting. But actually over the entire period, being invested in that strategy, you’d have got 8.71% per annum. And if you use the rule of 72, that will tell you that you doubled your money in just over eight years. But volatility, as I said earlier, is the price we pay for those higher long-term returns.

Ryan Bridge
Phil, thank you very much. That was Phil Morgan Rees. He’s Head of Wealth Management and Advice at Milford. Another great session, another great podcast. Thank you so much for tuning in. Don’t forget you can like, follow, subscribe, but you can also share these podcasts with a friend or a family member who you think might be interested in learning a little bit more about investing and understanding this world. It’s been great to be with you again. We’ll see you next week.

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