Hold on tight
Investors who flee to conservative funds in a downtown are missing bargains, writes Susan Edmunds.
Enough of the stellar sharemarket returns and rapidly rising balances – KiwiSaver members are being told what they really need is a good downturn.
KiwiSaver members and other sharemarket investors have enjoyed a long run of good times in the equities markets.
But commentators say that although this is likely to come to an end at some point (and some may see their balances drop if share prices wobble), that is not something to fear.
John Berry, of Pathfinder Asset Management, said a sharemarket drop would give most investors an opportunity to boost their accounts.
Because most people invest a set amount each payday, that contribution would buy more when the markets were down.
Then, when prices picked up again, they would own more of the shares which were then worth more.
‘‘If an investor is a long way from retirement and contributing to their KiwiSaver regularly then we should encourage them to think ‘markets are dropping so as I invest now in my KiwiSaver, everything just got cheaper – I am buying bargains and will do better long-term’,’’ he said.
‘‘There are Warren Buffett quotes around this like ‘we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful’ and ‘look at market fluctuations as your friend rather than your enemy’. I think this is important – yes, there is some teeth-gritting to not dial down the risk and change funds – but it’s a positive as well – I am buying cheap.’’
He said people needed to remember that all the fundamental components that made an investment a good bet still remained – they were just getting it at a lower price. Volatility was ‘‘just what markets do’’.
At the country’s largest KiwiSaver provider, ANZ, general manager of wealth products AnaMarie Lockyer said market uncertainty led to spikes in the number of people wanting to switch to more conservative funds.
The Brexit vote and US election had prompted an increase in switches from about 100 a day to 300.
‘‘That said, over the past three major events we have seen progressively less switching each time, which is hopefully driven from better information and knowledge of market volatility and impact on their investments,’’ Lockyer said.
‘‘If you’ve got a long time until retirement – I’m talking 10, 15, 20 years, until you’re 65 and you might want to draw down your KiwiSaver, you want a market selloff. Volatility is your friend, I firmly believe not enough people realise that,’’ said Chris Douglas, of research firm Morningstar.
‘‘It gives you the ability to invest at lower prices on the assumption that over the longterm you will see the market trend up.’’
Berry said people in schemes such as KiwiSaver tended to do better than investors who were making ad-hoc investment decisions.
‘‘There’s a greater discipline to being able to stay the course through market volatility and disruption and so you tend to have better outcomes.’’
Murray Harris, head of wealth management and advice at Milford Asset Management, agreed.
‘‘The great thing about KiwiSaver is that contributions by members are locked in every pay, no matter what the markets are doing. So that avoids the often flawed temptation to not invest when markets and prices of the securities traded on those markets are down – or even worse – to sell,’’ he said.
‘‘By adding regularly to your investment fund regardless of markets being up or down you end up in a better position, because when markets are down you buy more for your money. You could increase your contributions or make a one-off lump-sum investment to your KiwiSaver account in weaker markets, but in the time it takes for those contributions to flow through the system to your actual KiwiSaver account you may have missed the buying opportunity.’’
He said to maximise returns, members should contribute as much as they could afford and get as much as they could from their employers’ contributions.
‘‘Possibly make some lump-sum contributions if they are able to but the key is to stick with it over the long term. The great thing is when markets are down it’s not only the member’s contributions that are buying cheaper assets, but also their employer contributions, so it’s a double whammy.
‘‘One thing which amazes me that inexperienced investors often do is when markets are down or weaker they do nothing, or worse still, they sell out to shelter from the storm. The problem is, when do you get back in? No one can pick the top or the bottom of the market, so it’s best to just keep investing consistently.’’
He said the same people would rush to the shops when there was a big sale if they knew they were getting a bargain.
‘‘But they don’t think or act the same when it comes to their investments. If you buy quality assets at a good price you are likely to be handsomely rewarded. The key is being disciplined and sticking to your long-term plan no matter how volatile markets are. Over the long term you will be rewarded and you’ll be smiling when you are enjoying the retirement you dreamed of.’’
But Berry said there were some people for whom a downturn would be problematic.
People who planned to retire soon and might want to withdraw their money should move to a more conservative fund before a downturn, to protect their balance, he said.