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Investing

Share investing in our world of uncertainty

4 March 2022
Reading time: 5 minutes


Posted by Tom Hartmann , 2 Comments

Do you find yourself doomscrolling through bad news? Sometimes this can happen with your share balance, too. Russia’s invasion of Ukraine is just the latest in a line of events knocking the sharemarket around – the pandemic, inflation, rising interest rates. Who knows where it’s all headed...

These days it’s so easy to check our share balances, practically in real time, at any time – we’re bound to see them fall much more often. That’s not a great feature, actually.

So how can we keep investing in such an uncertain era? Do we wait things out until it all calms down a bit?

Shares go up, down and sideways

Seeing your balance climb like an escalator but then drop like an elevator? Ups and downs in your balance are all part of investing. This is because you’re not simply saving, but investing by buying shares of companies, which go up and down, and even sideways, in value in the market.

A single company’s shares can stay flat for decades, with no growth and then end up being completely worthless. They can also skyrocket, which is obviously what most investors are hoping for.

Sharemarkets rise and fall, but over the long term typically track upwards and outperform other investments.  

Have a plan for the long term

When you’re investing your money you need to have a plan. What are you investing for? How long are you investing for? Shares are a long-term investment, so you need to be able to ride the ups and downs. Knowing your goals will help you stay the course when you start to get concerned by dips in the market.

For shorter term goals (within 3-5 years), investing in shares might fluctuate too much, making a more conservative investment better suited to you. Your returns may not be as great, but neither will your losses generally.

Set up your emergency fund

Share investments aren’t the same as a savings account. Before you start investing, we recommend setting up an emergency fund that can be easily accessed so you don’t have to dip into your investments (and potentially lock in a loss).

Are all your eggs in one basket?

Investing in a single company can have a sad or happy ending. Some of the world’s richest have made fortunes on a single company – a rare unicorn if you will – others have had their investments end up worthless.

This is where diversification is the answer – the strategy of spreading the risk that comes with investing in shares over wide geographic areas and industries. And the good news is it’s relatively easy to diversify when we’re investing in fractionalised shares (many tiny slivers of slices of shares).

Managed funds often diversify well. (This applies to our KiwiSaver funds, too.) You basically are as diversified as the number of companies included in a given fund. We just need to make sure they are spread out in different industries and locations around the world.

On the whole, if you spread your risk, your investments will be able to weather many storms in the long run.

Don’t panic – paper losses aren’t real… until you cash out

Something that doesn’t get said – especially in investment headlines that declare scary ‘losses’ of billions in the sharemarket – is that most of the time no money is actually being lost. When markets tank, you’re left holding the same amount of shares, but they’ve unfortunately gone down in value.  

When your investments take a slide in value, it is only on paper, unless… you panic and sell. That’s the point where you step away from any chance to recover, when you cement in your losses and make them forever.

Buy in at $1000, sell out at $500, and there’s no way that lost $500 will ever make it back to your pocket. But by sticking with your plan, you can make sure you don’t miss out on regaining that $500 and eventually watch it head even higher.

Which brings us back to doomscrolling, and why it’s such a bad idea to watch our investment balances ping-ponging up and down so often. The more we see ourselves seemingly lose money, the more chance we’ll pull the pin and explode our long-term progress.

Once you’re truly diversified, you should be able to breathe easy, set and forget.

The sharemarket will always head up… in the long term

Unless you’ve come to the doomsday conclusion that companies all over the world will cease operating and come to a screeching halt entirely – and stop providing goods and services that people want and buy – you can be sure that shares will recover. We just can’t say when exactly.

The good companies will make profits, and investors will want a share of the action and buy in. That pushes share prices back up and makes those companies worth more.

Long term, shares in general will continue to head upwards. But in the short term, we need to navigate a world of uncertainty by spreading our risk. Diversifying and regularly drip-feeding keeps us safe as we steadily grow our money.

 

 

Comments (2)

Comments

  • Gravatar for Kerry

    8 October 22
    Kerry

    In the article the writer could mention dollar cost averaging by continuing to save into sharemarket area in their KiwiSaver because their weekly contribution will continue to purchase shares through the unit trusts at cheaper prices.
    Some financial people call it dollar-cost-averaging, and it is an advantageous investment tool more importantly at times of uncertainty causing the wild fluctuations to share prices.

  • Gravatar for John A

    19 April 22
    John A

    Currently we are in a recession in NZ. NZ shares are generally dropping in price, except for utilities like electricity and telecommunications. So people are selling many of their NZ shares and buying utilities, sending the price of them up. The catch is you could buy them at too high a price! Shares go up and down an up and down. Don't buy at the top of a curve.

    Before buying, I check with Yahoo.com, Stockinvest.us and Simplywall.st - if these three sites all tell you a share is worth buying in the long term, wait until it is just past the bottom of a curve before buying.

    And Google "golden cross" for share prices, when the short term average price line starts to cross above the long term average price line. Stockinvest.us shows you these averages.

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