Investment Markets and Recent Fluctuations
You will have heard comments in the media recently that the stock-markets have ‘had their worst day since the Global Financial Crisis in 2008’. You may have noticed that your KiwiSaver and other market linked investments have fallen in value as a result of these market falls.
We thought it would be useful for you to have some context around these comments to help put this into perspective for you.
For the last 12 years, the stock-markets have had the longest ‘bull run’ in recent history. Economies around the world have kept on growing, and the values of companies have kept going up. During this time, interest rates have been reduced to historic lows.
For the last 4-5 years we have been saying to our clients to anticipate a correction in the markets, as that is the natural order of things, we thought that it might happen in the last quarter of 2018, but after that small correction, things kept growing.
The events of the last few weeks are as a result of the uncertainty over Corona-virus, combined with the ‘oil war’ that started over the weekend of March 7-8, between Saudi Arabia and Russia and saw the oil price falling.
Various businesses will be affected, the immediate impact has been seen in tourism related businesses, and more recently oil companies have also been directly impacted by the fall in oil prices. It is feasible that the impact of restricted travel, supply chain interruptions and consumers stopping buying mean that all industries will eventually have some kind of impact.
Remember though, that with your KiwiSaver, and if you have a Moneyworks managed investment portfolio, you have well diversified investment portfolios, across different asset classes, countries, industries and companies. Current events (good and bad) will impact on each asset class and investment in different ways. This is the value of having a well-diversified portfolio, regardless of the economic and market cycle.
There may be a recession in various countries around the world as the uncertainty caused people to cut back on their spending, and there may be some companies that have a lot of debt (are highly leveraged) go under.
However, the important thing to note is that these are all short term impacts as compared to the long term horizon of your investments.
We know from experience that good companies recover – and your fund managers are tasked with making sure that you are invested in good companies. We just don’t know the time horizon that this will take. However, we do know that investment markets will remain volatile.
If you are making regular investments into your KiwiSaver and/or your investment portfolio, this is a great time to continue investing and buy into these companies that people were prepared to pay far higher prices for in January and February this year. Their earnings may reduce – but again, this is likely to be short term, while there continues to be uncertainty.
If you are already retired, and taking regular withdrawals from your investments, as long as you have a clear financial plan, there is no need to change anything with your strategy, they are long term investments designed to last the rest of your lifetime.
The diagram above is the ‘history shows’ graph which reminds you that things rebound and life does go on as normal over time.
If you have any further questions, please contact your adviser on contact@moneyworks.co.nz and they will answer your questions.
