Staying the course

Instinct might tell you to switch into a ‘safer’ investment option when markets get the jitters. But if we look back on previous market events, it’s clear that having patience is the best strategy in unsettling times.

The first rule to keep in mind is that markets are always changing. Over the short term, investment markets can fluctuate in response to world events, economic trends, changing investor sentiment, and a range of other factors.

Sometimes, those fluctuations are dramatic and unpredictable – for example, uncertainty about how COVID-19 would play out led to huge market swings at the start of the pandemic. The Global Financial Crisis of 2007/08 and the Russia-Ukraine war are two other examples from recent history. 

Events like these are usually impossible to predict, as is the fallout. But history shows that while there are plenty of ups and downs, markets generally rise over the long term. 

As humans, we’re an emotional bunch. Sometimes we let feelings get in the way of facts; or we might let our desire to be part of the ‘in crowd’ influence our decision-making. That’s natural – no human being is 100% logical, all the time.

However, that ‘herd’ mentality can be a real issue when it comes to investing. It can cause investors to overreact to events (like the ones mentioned above) and sell investments when the price drops, because lots of other people are – therefore missing out when the price rebounds. For example, switching your KiwiSaver from a growth fund to a conservative fund in response to a short-term dip can effectively lock in your losses. 

It works both ways, too. Hastily buying investments when they’re popular and the price is high can be tempting – but unwise, as most of the gains have already been made by others.

Any investment comes with risk – some bigger than others. While you can’t avoid risk, what really matters is how you manage it. It takes patience and discipline to play the long game, but history is on your side. Despite significant short-term blips following big market events, investing for the long term allows you to balance out short-term fluctuations – and benefit from when the market rebounds.

At ANZ Investments, one of our core beliefs is that long-term investing outperforms short-term investing – so we carefully assess the long-term potential, and the balance of risk and returns, when considering any investment. Our long-term horizon means we can take a more balanced view of markets (even when they’re volatile), and stay focused on long-term trends.