The arrival of Covid-19 has shaken up pretty much everything we had become used to about normal life in New Zealand – including our finances.
After years of record-low unemployment, super-charged share market returns and strong house prices, many Kiwis have been forced to rethink a future where their income is shakier just as their investments start to wobble, too.
Here are a few things we might have learnt from the Covid-19 outbreak that could set us up for a better investing future.
Investment commentators talk about “black swan” events – the things you never saw coming. While everyone talked about share prices looking a bit high and the possibility of growth slowing down, there was no clear reason why anyone should expect things to take a quick and sudden turn for the worst. Then Covid-19 became our reality.
It’s been a great reminder to many of us that there is always the possibility of a threat that you never considered or saw coming. While you can research and prepare for the risks that you are aware of, it’s always worth keeping in the back of your mind that there might be things just around the corner that you’ve never considered.
Always check your risk profile
The recent market downturn may have stress-tested your attitude to risk. For example, are you invested in the right KiwiSaver fund for your risk profile? It’s important to keep on top of updating your risk allocation in line with any changes in your circumstances – before it becomes a problem.
Having said that, if you’re considering changing your investment strategy now, please don’t hesitate to give us a call. By switching to a more conservative fund now, you may crystallise a loss. If your risk profile and investment horizon and goals haven’t changed, sticking to your investment plans may be the best way to go. And on this note…
Timing the market is tricky to do
Many people moved out of shares when prices had already started to drop substantially – and then vowed not to think about it until the pandemic was over. The problem was, there have been recoveries since then that those who shifted out have already missed out on. We’ve seen how hard it is to accurately pick the top and bottom of any market move.
If you can make it through the worst financial times, you’re better positioned to start to get ahead when things improve again. If you have an investment plan in place, it will give you the reassurance to keep going for your goals while other people are distracted – and potentially spot opportunities they might miss.
It’s tempting to put all your money into something that’s going well. But the past few months have shown us that everything can change quickly – and money that you piled into an airline’s shares, for example, could dwindle pretty quickly. People who have spread their investments and their risk are likely to be in a better position.
Passive versus active management
What is the best approach is still up for debate, but the market fall has made it clear to many investors how each type of fund is likely to perform.
Passive funds have followed indexes down – as you would expect. Some of the higher-fee active managers have been able to stave off the bigger drops with their investment decisions. No one should make a choice about the right fund for them on the basis of a few months of returns, but this is a real-life example of the differences between the management approaches.
Like to talk?
How are you faring through this upheaval? Whether you want to check your investment strategy or sound out some opportunities, please get in contact with us. We look forward to hearing from you.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.