14 December 2021

Mary Holm: Investing is for the long term

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by Mary Holm

I’m worried. While it’s great to see many new people getting into investing in shares, and others taking more interest in their KiwiSaver accounts as their balances grow, they could be riding for a fall.

Share markets – and property and bond and cryptocurrency markets for that matter – fall as well as rise. And so do all but the very lowest-risk KiwiSaver funds.

It happened not long ago

We saw an example of a share market downturn in February 2020, near the start of the Covid-19 pandemic, when both the New Zealand and world share indexes plunged. More than 200,000 New Zealanders – particularly young people - panicked and moved to lower-risk KiwiSaver funds, and others sold their share investments.

However, the markets recovered remarkably quickly, before more people reduced their risk. That was great. The only trouble is that such a speedy turnaround may have given investors a false sense of security.

The 2020 plunge was the first major downturn since the global financial crisis in 2007-09. In the decade in between, newcomers to shares and KiwiSaver enjoyed a pretty steady stream of market gains, no doubt boosting people’s confidence in their investments. There was the occasional “oops”, but not for long.

We don’t know, though, when the next downturn will happen. It could be tomorrow – literally. And it could take a few years to fully recover.

What to do?

How can you cope with volatile investments? One way is to avoid them, sticking with low-risk funds or bank term deposits. But in the long run your money will grow much more slowly.

If you plan to stick with shares, higher-risk KiwiSaver funds or other share funds, ask yourself three questions:

Is your investment spread across many different shares?

If you’re in a KiwiSaver fund or another fund, this is taken care of for you. All the funds I know of invest in a wide range of shares.

If you’re investing directly in shares, it’s wise to spread your money over at least ten companies, and 20 or 30 is better still. Shares in a single company can become worthless, but that doesn’t happen to multiple companies all at once. What’s more, the companies should be in a broad range of industries. A single industry can hit hard times.

It’s also wise to invest in many different countries. The easy way to do this is through a New Zealand-run managed fund that holds international shares. Many KiwiSaver funds invest internationally. Ask your provider about your fund’s mix.

When do you plan to spend the money – perhaps on a first home, or in retirement?

You don’t want to ever be forced to sell an investment when it’s down. So you need to think about your spending plans.

If you expect to spend the money within ten years, I suggest you move to a medium-risk KiwiSaver or other managed fund. If you stay at the higher risk level, there’s a chance the markets will fall and won’t recover in time.

Then, when you get to within two or three years of spending, move to a low-risk fund or bank term deposits. Even medium-risk investments can be pretty volatile. You want to be sure that every last cent will be there when it’s time to withdraw the money.

How would you feel if your investment balance halved in a downturn?

It’s happened before. Starting on BlackTuesday, 20 October 1987, the value of all the shares listed on the New Zealand stock market halved in less than four months. The market continued on down to a 60% drop, and took several years to recover. Around the world, the crash was similar, although the recovery was faster.

When the market crashes, many people sell their shares or move their savings to lower-risk investments. This is a bad move. If your $10,000 balance becomes $5,000 and you sell or switch, you’ve made that $5.000 loss real. But if you wait – and your investment is well diversified - your balance will grow back again.

How do I know? Share markets have always recovered in the past.  And when you think about it, they always will.  Companies continue to provide goods and services, and people continue to buy them. Many of those companies will make profits, and investors will want to participate by buying shares in the companies. That demand will push prices back up.

Put it this way: if that process doesn’t continue, we’ve got more to worry about than our investments!

Despite these assurances, though, some people can’t cope with seeing their balance fall. If that would be you, it’s really important that you reduce your risk now, before a downturn, so you don’t find yourself turning a loss on paper into a real loss.

Not sure?

If you think you may be able to handle a downturn, but you’re not sure, move just some of your savings to lower risk now. Then you won’t take such a big hit.

And if you’re on the sidelines, avoiding shares or higher-risk funds, test yourself with a small amount of money.  In KiwiSaver, most providers will let you invest in more than one of their funds, so you could  move, say, a quarter of your money to higher risk.  Then see how you go in the next downturn. If you stay cool, transfer more. 


In the long run, people with diversified higher-risk investments, who don’t plan to spend that money within ten years and who stay put during market downturns, come out as winners.

This article has been prepared for the FMA by financial columnist and author Mary Holm. The views and opinions provided in the guide are those of Mary Holm and do not necessarily reflect the views or official position of the FMA.

Mary’s advice is of a general nature, and she does not accept responsibility for any loss that any reader may suffer from following it.

Find out more about the basics of investing