It really isn’t possible to ‘time’ the markets – investors with $1.4 billion in KiwiSaver funds learned this in March
When we meet with our Membership Fee clients on an annual basis, we consider the risk profile that their investments are invested in. As your life changes, this may change. We encourage our non Membership Fee clients to engage with us to discuss your risk profile and whether it is appropriate for you, at any time, just email us on firstname.lastname@example.org.
We work with our clients to help them understand the value of staying where they are when there are major changes to investment markets, so that any losses remain temporary and aren’t locked in as permanent losses.
Moving from a higher risk profile (which you may have felt was appropriate when markets were going up and you kept seeing good returns) to a more conservative risk profile – when the markets fall often ends up locking in those losses. This is because markets do tend to bounce and no-one has the ability to pinpoint the exact top or bottom of the markets.
The highest points of global share markets was February 20th 2020 (February 21st 2020 in New Zealand). When the markets recognised that Coronavirus was in fact a threat to business and economies, they fell dramatically, to a low point on March 23rd 2020 (March 24th 2020 in New Zealand). As a result, your balance on your annual KiwiSaver statement, which is as at 31st March 2020 may well be lower than your previous balance – and you are likely to see negative investment returns over that 12 month period.
However, markets have rebounded dramatically, quicker than the majority of people thought they would. It may be that they will go down again in the next 6 months or 12 months, we don’t know.
There are many things that have an impact on how markets move, including the outlook for the economy (by country and global), the outlook for individual companies, investor sentiment, how low interest rates are, how much money is available to be invested.
Research has shown time and time again that it is not possible to pick the top or bottom of the markets and that the best approach is to stay in the markets ‘time in the market’ as compared to ‘timing the market’ (trying to pick the top and bottom of the markets).
This is one of the key things that we do for our clients, is to remind them of all the research and what actually happens, that markets do rebound, and to teach our clients to over-ride their human instinct to ‘do something’.
Unfortunately many KiwiSaver investors followed their human instinct and moved $1.4 billion at the peak of the market meltdown. Make sure that you aren’t one of these people in the future. Read more in this article at the New Zealand Herald.