What Goes Up Must Come Down: What To Do When Investments Drop
Wed Feb. 21st 2018
When you're an investor, seeing a sharp dip in the financial markets can be scary. Our instinct is to panic and often we can make rash decisions about selling investments or reorganising our portfolios. It's important to remember though that peaks and troughs are a normal part of investing. Investments go up, but they also go down too. In this article we share some tips on what to do if your investments or KiwiSaver drop.
When you're an investor, seeing a sharp dip in the financial markets can be scary. Our instinct is to panic and often we can make rash decisions about selling investments or reorganising our portfolios. It's important to remember though that peaks and troughs are a normal part of investing. Investments go up, but they also go down too. In this article we share some tips on what to do if your investments or KiwiSaver drop. You can also contact us here at Cave Financial for a no-obligation chat to review your situation.
The Reality Of Investing
Just as you do when buying seasonal fruit and veges in the supermarket, so it is with shares and investments: the best time to buy is when the price is low. But just as a poor harvest can affect the price of your favourite fruit, so there are many factors affecting the price of shares and investments. Market fluctuations which see investments going down as well as up are, therefore, an expected and unavoidable part of investing. It's how we react to these normal fluctuations that's important.
Keep Calm And Carry On
The best advice is to stay calm and do nothing. Tempting though it may be to take some sort of action, as with any decisions in life, making important choices in the heat of the moment is usually not a good idea. When things take a serious dip, instead of a knee-jerk reaction take some time out to carefully and thoughtfully review your situation. Use the following steps to make sure you take a measured approach.
- Review your fund type
What's your appetite for risk and reward? Use our online ANZ KiwiSaver risk profile questionnaire to help you determine where you sit. If you are naturally a conservative investor who is risk averse and your portfolio is more aggressive, then it may be worth changing your fund type. In addition, make sure that your portfolio is diverse. When it comes to investments it's always a good idea to have diversity so that you minimise the impact if there is a sudden downturn in one investment.
2. Examine your funding goals
What are you trying to achieve with your investment portfolio? Are your goals aligned with your time horizon? This is important because long-term investors will usually have a greater exposure to shares which typically will rise over the long term even if there are bumps aIong the way. So, if you are one of these investors then try to keep your sights on the long-term goal.
In comparison, short-term investors usually don't have any great exposure to shares that fluctuate widely. Instead they tend to have cash and fixed income type investments, which are not so volatile but may not yield as great a return.
3. Make regular contributions
As well as keeping a cool head, it's important to continue to make regular contributions. Don't stop just because your investment has gone down. The truth is that continuing with your contributions will actually minimise the impact of the bad times.
4. Don't watch the market returns!
Of course, you'll want to keep an eye on the markets to see how things are going, but daily checking is counter-productive, so turn off those stock market notifications. And don't be tempted to look at your returns on a weekly basis either. You see, Murphy's Law says that the more often you check your account, the more likely you are to see losses!
Cave Financial: Expertise And Support
And if you're concerned about your investments or KiwiSaver at any time, then get in touch with us here at Cave Financial. We have the expertise and knowledge to support you through the hard times as well as the good.
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