For the KiwiSavers and long term investors...
Over the last few weeks, the business news has been awash with words like Greek Crisis and China Downturn, and these headlines are making ripples across other markets around the globe!
If you have some investments with exposure to international shares, then it is likely that a portion of your savings will be experiencing some negative returns due to these headlines. The nature of risky assets like shares is that they do rise and fall in value, however, over the long term they tend to increase in value.
For example, right before the Global Financial Crisis in early 2007, the Dow Jones (stock market index in USA) was trading at 14000. By March 2009, the market was down to around 6500.
So, if you had $10,000 invested in early 2007 and this was all invested in the Dow Jones, your investment would have fallen to $5,200 - stink. This was an exceptionally risky period of time and one that does not happen very often at all. It was a '1 in 100 year' event statistically, but I’m using this period as an example to illustrate my point. In 2013, the same index was back up to 14,000 and today the index is sitting at 18,000.
That same $10,000 in 2007 would now be worth $12,800.
So the message here is that even in one of the most dire stock market periods of the last 100 years, the market recovered and increased in value, therefore investing for the long term minimises your risk.
The even better news is that if you have a regular investment savings plan like KiwiSaver, and you continued to invest regularly during 2007 and 2013, those savings enjoyed a significant return for the periods between 2013 and 2015 due to the recovery of the markets.
Another way to minimise your risk is to diversify. By that I mean have a combination of risky assets like shares and property, and offset this risk with some safer assets like bonds and cash. Safe assets are always in favour by investors when times get a bit wobbly, and therefore increase in value for those that are holding those investments BEFORE markets get wobbly!
It’s important to also have a good fund manager who actively manages your money over time by maximising your gains and minimises your losses.
The old saying is not to shut the gate after the horse has bolted! So make sure you have the right mix of assets based on your attitudes towards investment risk and your investment time frame. If you are not sure what that means for you, you should contact me to discuss!