Should I withdraw or change my investment strategy when the markets are unstable?

Knee-jerk reactions are common when investment markets are unstable, but whatever you do don’t withdraw, or change your investment strategy, without talking to a Britannia Financial Adviser first.

For most investors, it’s important to stay the course when markets are unstable. This can be easier said than done when there is an economic downturn and you’re not sure what the future holds. The media tends to add fuel to the fire when a calmer reading of the facts may reveal the situation is not as dramatic as it’s being portrayed. As a result, investors are more likely to have a knee-jerk reaction.

An important fact to be aware of is that investment markets will always rise and fall. This is normal, and history has shown us that markets always recover.

The three most important things to remember when markets are unstable:

  1. Focus on your long-term goals. If the purpose of your investment is to save for your retirement remember that it is a long-term investment. While it can be distressing to see your portfolio deteriorate due to ongoing volatility in investment markets, we encourage you to take a long-term view.

  2. If you move your money during a downturn in the market, two things might happen:
  • You might miss out when the inevitable market upswing occurs.
  • It may take much longer to recover your money.
  1. Switching funds may be the right thing to do for a few investors, but this probably would apply to them whether we were passing through the COVID-19 era or not. If an investor is close to, or is in retirement and needs extra reassurance, then more conservative investments might be appropriate.

The psychology of investing is similar to that of driving a car

With so many global events currently impacting the markets, it might be useful to compare investing to driving a car - something which most of us are familiar with.

Let’s explore a few examples:

  • You are driving on the open road when you see a parked police car with its officers watching for speeding cars. Instinctively, you slow down, even if you were driving safely and below the speed limit in the first place. However, once you’ve passed them you continue to drive slowly. The rational being that there may be another team of police officers monitoring the same stretch of road.

Similarly, people can panic when their investment value drops. A good example of this was in March 2020. Investors assumed their investment values would continue to fall. Even after the moment has passed and the investment has at least partially recovered, panicked investors might change their investing behaviour, even though there is no need.

  • Did you know that if you’re driving at 110km an hour, you’re only covering each kilometre three or four seconds faster than if you were driving at 100km an hour? Most people understand that speeding at 110km an hour isn’t worth the risk for such a tiny gain. After all, your goal is to reach your destination, not set a speed record.

In the same way, investments are a vehicle to help you reach your financial goals and be able to retire comfortably in say 20 years. Seeking a little extra return may be worthwhile if it increases the chances of reaching your goal sooner, but you have to understand and accept the extra risk involved.

  • Have you ever been frustrated with the slow progress of traffic in your lane when you’re driving on the motorway during rush hour traffic? The lane next to yours appears to be moving faster, so you change lanes. As soon as you do, your new lane grinds to a halt. And the lane you left picks up speed and is now the faster lane.

In the investment world, this is called ‘chasing performance’ and has caused the downfall of both inexperienced and experienced investors. Why? Because there’s no guarantee last year’s winning investment will behave the same way this year.

One of the key requirements for investing is patience. Despite the short-term ups-and-downs, good quality, well-diversified investments should grow in value over time.

It’s worth noting that generally, shares fall every five to seven years. And they may even fall as much as a third in value. That’s not a comfortable thought until you remember that within five to seven years, they will likely have regained and surpassed their value when they fell. As a result, there are significant periods of time when shares deliver no returns at all. Wise investors are prepared for this, and plan accordingly. The reward is that you can expect to be paid significantly higher returns in the long run.

How much does market volatility affect my superannuation, KiwiSaver and other market investments?

As the majority of working New Zealander’s are invested in a superannuation or KiwiSaver Scheme it’s worth touching on here. It’s important to remember that superannuation and KiwiSaver accounts are not bank accounts. Because they are an investment account, market volatility does have an impact. It’s natural to be nervous when you see your balance bouncing around, or dropping to a low point, and then staying there. However, when considering whether to move your superannuation or KiwiSaver investment, the same rules apply: Don’t panic. Seek advice from Britannia Financial.

If you are nearing or over 65 and you don’t know what to do with your superannuation or KiwiSaver lump-sum once it’s available, then now is a great time to talk to a Britannia Financial Adviser. Britannia offers an investment product called the Lifetime Income Fund which combines your superannuation, KiwiSaver (or other) lump-sum investment with insurance to give you a retirement income for life. This provides you with comfort that no matter what happens to interest rates or financial markets, your income is insured to last the rest of your life.

It’s a great option to consider if you are nearing retirement and have a lump-sum to invest because it provides peace of mind for the rest of your life – you can enjoy your retirement knowing that your income is covered.

The move of any investment should be considered carefully against your own personal circumstances and talking this one over with a Britannia Financial Adviser is a wise idea, whether the markets are fluctuating or not.

If you have any concerns about your investments, whether you are a Britannia Financial client yet or not, give us a call on 0800 28 28 28, or email us at investments@britanniafinancial.co.nz and let us know how we can help. Whatever you do, talk to us, or your own financial investment adviser, before you make any decisions.

For more information about Britannia and the Lifetime Income Fund visit our website at britanniafinancial.co.nz/lifetime-retirement-income/

The information contained in this article is of a general nature only and does not take into account individual circumstances. It is not intended to provide comprehensive or specific financial advice. Before making an investment decision you should talk to your Authorised Financial Adviser.

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New Zealand

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Phone: +64 9 414 4215
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Disclosure Statements for our Authorised Financial Advisers are available on request and free of charge. Product Disclosure Statements for the Britannia Retirement Scheme and the Integral Master Trust are available from the schemes’ issuer, Britannia Financial Services Limited, phone 0800 500 811
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