Many economic commentators agree that increased market volatility where prices rise and fall more dramatically than in recent years, will be a hallmark of investing in 2016 and beyond. December 2015 through to early February 2016 saw a significant sell off in local and international markets - largely driven by economic uncertainty in China and historically low oil prices. True to form, the media accentuate the negative news and some investors have got spooked and sold out - typically when the markets were at a low. These investors simply crystallise their losses as inevitably, they smart at their losses and leave it too late before returning to the markets.
A month or more on and the investment markets are once again showing rises- in fact, for many investors, the markets have recovered all their earlier losses and investors are in profit. We need to appreciate that markets are pretty resilient and the central banks and other participants are not stupid. They will do all within their power to ensure a market recovery. Investors need to have faith that markets will recover and for most of us, sticking to the plan and staying invested is a prudent methodology.
We have been encouraging our clients for a number of years now to have a strong exposure to offshore equities due to our strong dollar plus international companies are generally larger and better able to ride out the market ups and downs. The recent Reserve Bank of New Zealand (RBNZ) lowering of the Official Cash Rate (OCR) may lead to lower interest rates but for those with offshore investments, it means that our dollar typically falls (which is not so attractive if you are planning an overseas holiday) but it increases the value of your offshore investments.
Typically we don’t want to be the ‘odd person out’ when it comes to investing. The media can easily create the impression that the world has imploded, investments are going to the brink and one would be nuts to be contemplating any form of investment other than bank deposits. However, history shows us that it is the countercyclical investor who often makes the big gains. Just when things seem to be darkest, they make the bold moves and invest - picking up high quality investments at low prices. Term deposits may be safe but the interest rate after tax is now pathetically low and could go even lower yet.
Trying to chase high investment returns as a way of funding one’s retirement is not the salvation for many New Zealanders. We are encouraging our clients to work with us to build diversified investment portfolios using a mix of shares, fixed interest, property, and cash.
This will be more resilient through economic cycles and we can structure capital drawdowns from each portfolio to achieve your financial needs. Give us a call if you have questions about the markets, or if you have cash and term deposits and you want these to work better for you over the medium to long term.