In the last quarter of 2018 and early 2019, investment and KiwiSaver portfolio’s lost value due to volatility in markets. Over the last three months they have regained most of the lost value and as there have been no flashing headlines you may be unaware.
Volatility is a statistical measure, it’s not what we think of when we think about risk. The main measure of risk is permanent loss of capital or money. Risk is a combination of three factors valuation, fundamentals and behaviours. It is money going somewhere where you are never going to get it back.
If you are a long-term investor you need to embrace volatility as this is when the real opportunities come along. Market values rise and fall, and this volatility allows you to buy investments at lower prices. There are some practical tips you need to think about to manage volatility:
- Make sure that your portfolio or KiwiSaver Fund is at the right risk level for you.
- Don’t try and time the market – very few people, if anyone can do it. You must buy investments regularly over a long period of time.
- Periods of turbulence are dangerous as they tend to elicit an emotional response and lead you to make poor decisions harming long term returns.
- You need to keep a long-term perspective and look through the volatility that happens day to day.
- A sudden market fall as in the last few months means little in the context of a 10 year plus investment timeframe.
- Stop taking notice of media with their sensational headlines, listening to short term news forecasts is at best unpredictable.
- Investors tend to make too many decisions rather than too few. The theory ‘If in doubt do nothing’ remains a good strategy.
- There are volumes of books and information available to show all of this is true- educate yourself.
There is no substitute for a sensible conservative boring approach to investing guided by a trusted investment adviser.