Investing is a long game

It’s no surprise people get nervous when money is involved. Money is intrinsically connected to our lives – 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 jittery – and sometimes make emotional decisions. We all remember 2020, when the markets dipped and thousands of Kiwis moved their KiwiSaver funds from high-risk to more conservative funds – leaving many to miss out on the rebound, potentially shaving thousands of dollars off their retirements.

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 which 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 can ride out the rough patches and prosper when things recover.

Following are some things to consider:

Active Management and why it 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, striving to ensure the right company shares and bonds are being invested in, at the right price.

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 primarily to shield you from most of the market’s peaks and troughs, or a higher-risk aggressive fund targeting higher returns over the longer term.

The right advice
At Milford, we want to make guidance available to help you make decisions. KiwiSaver members aged 18 to 64 can use our online KiwiSaver Digital Advice Tool to check they’re in the right fund for their goals and risk profile. If you’re investing outside KiwiSaver, you can get tailored guidance by talking to our advisers online or over the phone.

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.