2016 is unlikely to provide the high level of investment returns we have seen in recent years. In fact, the market is likely to be quite volatile with the potential for significant ups and downs in various markets, sectors and individual investments. This can lead to investor unease - often resulting in short-term fear-based decisions being made to the detriment of longer term gain. Key considerations for investing this year include:
• Quality pay
s: High quality investments have historically withstood economic downturns and negative investor sentiment better than their poor quality cousins;
• Ignore the short-term market noise:
Do not react to all the market noise that will inevitably surround the short-term ups and downs in the market. Modern media likes to trot out commentators and statistics to show how things have performed in the last few hours, days or months. This sells media - especially if it is negative news. However, the markets live on and quality investments inevitably recover and go to new highs. Panicking and selling at the bottom does not help you achieve those longer term goals;
• Diversification is key:
A well-structured portfolio will be diversified across multiple asset classes, sectors, investments and managers. This avoids having “all your eggs in the one basket”. If a specific market (e.g. the New Zealand sharemarket) fell hypothetically 10%, then there is usually some other part of the portfolio that would have made a positive return to help compensate for that loss;
• Take care if using term deposits and some high yielding savings products:
In 2015, a number of banks changed the rules relating to their term deposits and high yielding savings products. What was a simple product is now much more complex assuming you wish to obtain the return you signed up to. Check the fine print to identify when you are eligible to withdraw your funds without losing all the interest. We are seeing an increasing number of people becoming frustrated with losing the expected interest or not being able to access their funds due to failing to notify the bank within the due timeframe of their intention to access their funds.
• Take advantage of market downturns:
The market will rise and fall over the year. Talk to us about using your surplus cash to buy when things are cheap.
• Stick with the plan:
If you have medium- and long-term financial goals and you do not need to use all of your money right now, then stick with the plan and stay invested. If you have a well-diversified portfolio of high quality investments managed by a reputable fund manager, then they will be taking advantage of the market opportunities and buying when things are cheap. Additionally, indices may fall but the cycle lives on and things recover.
Talk with a Milestone adviser about any issues or concerns you may have around your investments.