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Market uncertainty and your investments

We know that the stock market is prone to extremes and the rocky start to this year has proven no different. High inflation, rising interest rates, the war in Ukraine and fears of slowing global economic growth are causing ongoing volatility.

Currently, stocks are in a bear market, hovering around 20% down. But there is confidence that this will correct itself.

What does history tell us?

History shows that the stock market will bounce back positively after a slump.  The adage “time in the game” rings very true at this uncertain time. The average time for the market at the bottom is about 1.7 years, although some analysts are expecting a potential recovery in the later half of the year.

Have a look at the graph below. It only looks at the S&P500, but you can clearly see how the market recovered in 1, 3 or 5 years following a significant market crash. The average 3 years forward return is +35%. The average 5 years forward return is a gain of almost 80%. (Source: A wealth of Common Sense)

What should I do?

Stay the course. Whether you are invested in KiwiSaver or other type of investments, you want to avoid knee jerk reactions at all costs, especially when experiencing negative returns. If your risk profile hasn’t changed, stay the course. As we’ve seen before, the market will correct itself with time.

Diversify. Most KiwiSaver investments and managed portfolios offer diversified investment options that help spread your funds over many different types of assets across many markets around the world. By diversifying you are lowering the risk of being too exposed to one type of investment.

Consider investing more. When markets are down, it could be a good time to buy more stock if you have money available, as you would be buying at a discounted price. However, this only makes sense if you are a long-term investor, and you don’t need that money for daily expenses. We recommend you speak to a Financial Adviser to assess what’s the right investment strategy for you right now.

If you are a KiwiSaver member, you are already buying more stock through your regular contributions. What you want to ensure is that you are in the right fund for your circumstances, so you are making the most of your investment.

Get advice. Rather than braving this unpredictable market alone, consult one of Apex Advice’s experienced investment advisers for an investment strategy that suits your needs and goals. This way, no matter what happens in the stock market, your diversified portfolio is tailored to your risk appetite and time horizon – and will eventually get you to where you need to be.

Do you want personalised investment advice to make the most of your KiwiSaver account and investments? Talk to one of our investment advisers here.




 

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