Published in Money Wise, The New Zealand Herald Thursday 28 April 2022
How to prepare for a potential market dip
Confidence in investing is increasing, thanks in part to buoyant markets. But many newer investors have never experienced a sustained market dip. FMA’s Manager of Investor Capability, Tammy Peyper, answers questions about what to do when markets take a tumble.
Are Kiwis prepared for market downturns?
When the sharemarket drops, some people sell up or move their investments to lower risk options. This means you lose the opportunity to ‘bounce back’ when markets recover.
We experienced a market dip at the beginning of the pandemic. FMA research in 2021 found some people – particularly young people - switched to lower risk KiwiSaver funds.
Sharemarkets go up and down, this is a normal part of investing. History shows us that after a fall they do go up again – it might just take time.
How can we prepare for market volatility?
Investing is a long-term game. Know what your investing goal is and remind yourself of your plan.
Make sure you are well diversified, know your risk appetite, and choose well-researched investments.
Humans are emotional creatures, and we have a number of biases that affect our investing. It’s natural, for example, to feel panic, but there are things we can do to respond in our better interests.
Avoid thinking of your investment account as a savings account. Don’t “doomscroll” and consider if you really need to keep checking your investment balance. Contact your provider or a financial adviser before making sudden decisions.
Try to become more mindful of the natural human instincts that drive us. We’re primed to make an active choice in a crisis. Not doing something is also a choice.
What should investors do if there is a market event?
Remember that just because the value of your investments might have dropped, it doesn’t necessarily mean you’ve lost money. If you’re well diversified and you stay the course, it’s likely the value will climb back again in time.
Where can readers go to find out more?
The best thing investors can do is empower themselves with knowledge. The FMA website has excellent free guides. We’re also on Facebook, Twitter, Instagram and Linkedin.