Money is an emotional topic for us all – and with good reason. We work hard to get it in the first place, and our hopes and dreams for our own future, and that of our families, are inherently linked to it. So, when investment markets fluctuate, it’s no surprise people get nervous. But there’s really no need to.
The state of the market
If you’re involved in an investment fund or a KiwiSaver fund, you’ve probably noticed how volatile things have been of late. That’s because share markets, where these funds invest your money, are influenced and impacted by everything from high inflation to rising interest rates. Throw in a global pandemic combined with global political uncertainties and you have the perfect recipe for market volatility.
But it’s important to remember that investing is a long game. Share markets always have peaks and troughs – periods of strong performance, and periods that aren’t so bright. If you panic and sell at the bottom of the market (the trough), you miss the opportunity to recover during the next peak, essentially locking in your losses. If, however, you can keep the bigger picture in mind, you are in a better position to ride out the rough patches and be better placed to prosper once things come right.
A few things to consider:
Why Active Management matters
Active management is essentially the opposite of ‘set and forget’. If the fund you’ve invested in is being actively managed, it means a professional team is constantly monitoring the markets and re-evaluating the investments in the fund. They’ll also be analysing the companies in the fund with the aim of ensuring the right businesses are being invested in, at the right price.
It’s not a guarantee of success but the aim of active management is to deliver strong returns over time by recognising opportunities as they arise, and moving quickly to capitalise on them – all while managing risk!
Diversification is important
Diversification is an investment strategy designed to reduce your exposure to risk by not putting all of your eggs in one basket. If you invest all of your money in one company, you run the risk of losing everything, should that company experience a catastrophic failure. If, on the other hand, your money is invested in a range of companies across a variety of different industries and locations, your risk is significantly reduced.
Understanding your risk tolerance
As the saying goes, ‘with risk comes reward’ – and that’s certainly true in the world of investment. Of course, some of us have a higher tolerance for risk than others which can depend on many factors including your age, goals and preferences. Understanding your appetite for risk will help you find the right fund for you – whether that’s a conservative fund designed to provide lower, but more stable returns whilst shielding you from most of the market’s major peaks and troughs, or a higher-risk aggressive fund targeting higher returns but with the expectation there will be more highs and lows along the way.
The right advice
At Milford, it’s our job to help you get the best guidance possible, which is why we’ve created a suite of intuitive digital advice tools, designed to help you map out your goals, understand your tolerance for risk and choose the fund that suits your objectives. It’s a great place to start your investment journey – and today’s a great day to do it. Remember, the long-term approach is about time in the market, rather than timing the market. The sooner you start, the sooner you could be reaping the rewards!
Try our online tools or contact our team for a chat on 0800 662 345.