Investors, keep calm and carry on

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Leighton Baker: ‘It’s encouraging most investors haven’t lurched the panic button.’

Leighton Roberts is co-CEO and founder of Sharesies.

OPINION: Are we there yet? No. Have we got some bumps ahead? Yes. Shall we hang on for the ride? That’s investing!

Market volatility has become the norm as the world economy takes a hammering and grapples with a complex web of events including Covid-19, the war in Ukraine and rising inflation. Our financial confidence is being tested.

The narrative is now the debate of “are we headed for recession?”

US Gross Domestic Product data released this week shows negative growth for a second quarter, but economists are waiting for indicators such as income, spending and employment to decide whether or not the country is in a recession.

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It’s been encouraging to see that most investors locally haven’t lurched for the panic button– which isn’t easy when portfolios start to show more red than green. Most are riding this cycle out – a first experience for many which can be daunting to navigate, so here are some things to keep in mind.

FINANCE AND EXPEDITURE COMMITTEE

Reserve Bank governor Adrian Orr discusses the risk of a recession in May.

Anticipating a market reset

The first thing to remember is it’s natural for markets to have ups and downs – these give us the chance to see higher growth returns over time. The market works in cycles, we should expect that this period of downturn will come to an end, because it will.

Larger, international markets are more familiar with these cycles, and positioned to bounce back quickly. But in New Zealand, even a short period of stagnation has had a longer lasting impact.

But don’t be alarmed – if we enter a recession it will be more of a slow burn than a sudden jolt and there’s a good chance we’ll feel this on a shallower scale than other countries given our country’s low unemployment and strong balance sheet.

Stuff

Lessons from history tell us not to panic.

We know that it’s rough, but we encourage you to make the most of this period by considering these things: Don’t make any panic changes to your KiwiSaver risk profile, take whatever steps you can to protect your income, rethink how you’re dealing with existing debt and if you need to take on more, avoid locking in losses – your portfolio might be down, but a last resort is to withdraw funds, keep investing what’s right for your circumstances, time in the market over timing the market.

Investing is for the long-term and it should be done regularly across your own portfolio and your kids’ accounts.

Lessons from history

We should also learn from the past and avoid being another generation that only invests when the market is hot.

Looking back at investor behaviour after the 1987 stock market crash, many who leveraged their homes to invest in shares were burnt, then naturally afraid to re-invest in the stock market. As a result, Kiwis missed out on the gains that other countries made on the back of a huge period of global growth, including the Global Financial Crisis.

Looking ahead

Today, the average investor on Sharesies has a portfolio valued at around $4000, spread across multiple Exchange Traded Funds and individual companies. This is a much better place to be to make the most of the downturn.

A recent Sharesies’ investor poll also showed that 85% of people are keeping calm and buying more during this time, while 90% say they are investing for the long-term, so it’s encouraging to see Kiwis thinking in decades for investment horizons.

While things are turbulent right now –preparation, sticking to your long term goals and staying calm will help to set us up as a nation to come out the other side stronger.