How to weather investment ups and downs

Short-term market swings seem designed to test our mettle. Here are a few strategies to remember to help you focus on the long-term when it comes to investing. 

For most New Zealanders, their KiwiSaver is a long-term, usually multi-decade investment. Attempting to pick which sectors and strategies will or won’t be successful over the short term rarely works out well. Instead, a better wealth-building approach might be to work out an investment strategy that’s right for you and stay the course. 

Consider aligning any investment strategy with long-term goals and risk tolerance –these should remain unchanged even as markets go up and down.

Selling or shifting your investments at the first sign of a market drop is like parachuting out of a plane at the first sign of turbulence. Yes, you’ll make it back to stable ground, but you’ll be a long way from where you were aiming to be. While you may feel it’s necessary at the time, your wealth is likely to take a hit over the long term.

 When you shift or remove money during market downturns, any losses become locked in. By sticking to a long-term plan, those losses have the opportunity to reverse direction. More often than not, staying invested proves to be a better option. 

There will always be investments swings and roundabouts.

Market crashes can test the resolve of the most seasoned fund manager (not to mention engaged investors). But history has a way of repeating and with that comes an opportunity to learn valuable lessons. As markets rise and fall, it’s so tempting to capitalise on or defend against these fluctuations. Some of the best-performing funds are, by nature, volatile, and investors need to stay disciplined and keep a cool head.

Seth Klarman (often compared to Warren Buffett) cautioned readers of his book Margins of Safety about the pitfalls of letting our emotions influence our investment decisions. “Successful investors tend to be unemotional... By having confidence in their own analysis and judgment, they respond to market forces not with blind emotion but with calculated reason…Emotional investors and speculators inevitably lose money”. 

So particularly for those new to investing, it’s important to have a solid long-term investing strategy, to avoid being driven by panic or greed. 

Short-term losses tend to bounce back over time. 

When markets fall, as they did during the Global Financial Crisis (GFC) and early COVID panic, immediate losses in your KiwiSaver or other investment funds can seem significant, but shrink, in perspective, if you zoom out to view performance over the longer term. Past trends suggest the biggest losers in uncertain times are those who switched trying to chase returns or pulled out to protect their investment. Historically, when markets have bounced back after a fall is often when investors who ‘stayed in’ have made the most profit.

So if you have time on your side and you’re saving for a long-term goal, such as using KiwiSaver for retirement, chances are the best thing to do is to just keep going, just as you would do if markets were stable.

Long-term investing means taking the rough with the smooth.

Falling stocks, global crises, and economic recessions are to be expected over a lifetime of investing. During these times, remember that markets eventually recover, and staying invested through the market’s ups and downs means positioning yourself to benefit from the rebound when it does happen.  

Remember too that if you’re the sort of investor who seeks big wins, you will likely need to white-knuckle it through some losses. The higher volatility of a growth-focused portfolio means large movements are not only possible but expected. Our current intel and past experience both tell us these types of investments do deliver on their long-term objectives and offer diversity to a portfolio. 

Investing during a downturn means spending less to get more.

To help smooth out performance lows, drip feed your fund with regular ‘little and often’ deposits. This takes advantage of buying ‘cheaper’ and profiting as markets rise again. While there’s no guarantee when it comes to investing, this strategy will help you maintain and grow your portfolio through market drops.  

In short: staying the course when markets are weak can be nerve-wracking. But it’s vital not to cut and run, to protect your investment from unnecessary, ‘locked in’ losses. A better approach is to create an investment strategy that meets your wealth objectives, situation, and needs, and stick to it. 

In this article, we mentioned investment, risk, and volatility. You can learn more about how to optimise investment risk through diversification here.

If this article has got you thinking about investing or reviewing your current investment goals and strategy, a great way to plan your investments while setting and tracking your financial goals is via the GoalsGetter tool - our smart online platform that steps you through selecting an appropriate fund to match your investment profile and goals. 

In this article, we mentioned KiwiSaver Funds. You can learn more about this fund here: Learn more about Nikko AM KiwiSaver Funds.