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When investing, your biggest risk is you

When the stock market crashed in early 2020 no one was surprised, the pandemic brought a lot of uncertainty around the world. What was surprising was how quickly the market recovered and how more people turned their attention to investing.

The new wave of investors might have been due to a combination of factors: the evolution of online investing platforms, the dip in the market tempting people to “buy cheap”, and potentially, people spending more time at home during lockdown periods.

The fact is that more New Zealanders are investing, and we think that’s great. However, it’s important to get the fundamentals right to be a successful investor in the long run.

When starting out, if you are ‘DIYing it’, it can be easy to fall into the habit of doing daily checks of your investment and its performance. This can lead up to knee-jerk reactions caused by external factors, like news or social media trends.

In a recent opinion piece, Frances Cook, NZ Herald, outlined that it can be dangerous to follow advice on forums or social media: “Gurus have popped up promising strategies to get rich quickly, hyped stocks are being spread through online forums and social media. For every one winner, there are 10 losers”.

Always be mindful of where your advice is coming from

When the market crashed in early 2020 we saw a lot of KiwiSaver investors switching their portfolios to conservative funds, without getting professional advice. Unfortunately, these investors crystalised their loses. A better course of action might have been to stay put – as we know now, the market recovered quickly. This is just an example of how getting appropriate advice can make a huge difference in long-term investing.

Recent research commissioned by the Financial Services Council has found that New Zealanders’ reluctance to seek financial advice is coming at a significant financial and personal cost.

Money and You found that New Zealanders who do get advice save more, invest more, travel more and overall have improved wellbeing. On average, financial returns for Kiwis that get professional advice are 4% better than those who don’t, they save 3.7% more, and travel six times more”, says Richard Klipin, CEO of the Financial Services Council.

“To put this 4% into real terms; if a 25-year-old were to take financial advice and saved $2500 per year, they would be $1.5 million better off at 55 than if they didn’t take advice. That’s a remarkable difference, and a benefit that many more New Zealanders should be receiving”.

As an investor, whether you have a personal portfolio or you are a KiwiSaver member, you should focus on things you can control. If you are trying to do it yourself you might be missing foundational steps in investing successfully, like understanding your risk profile and diversifying your investments.

Any professional adviser will tell you that what you need is an investment plan made for you, based on your goals and your risk profile. Once you have a strong plan, what you need to do is simply, stick to it.

You need to remove your emotions from investing, otherwise, they can become your biggest risk. A good plan will always incorporate potential bumps in the road and how you will (not) react to them.

If you are new to investing, have been thinking about it for some time, or you simply want help putting some structure around your current investments, get in touch. We want to help you achieve your investment goals, providing good information so you can make good decisions.



 

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