No one likes seeing their investments going down. How can you manage your emotions to stay on track for investing success?
It’s normal to want to “do something”
In times like this, the impulse when the stock market falls hard for a few months in a row is to do something. Anything. Our life savings are often on the line, after all. Changing your investments during this time could end up costing your future self thousands or even tens of thousands. As well as that, feeling stressed and emotional is not a fun place to be, so learning some techniques can help.
It’s the key to your success
Staying calm when it comes to your investments is a key part of long-term success. Most of us will have KiwiSaver accounts - and therefore be investors - for most of our lives. Investing can be a good way to build wealth over the long term, but it is not worth losing sleep or getting upset over. Market ups and downs will happen many times, and sometimes these downs will be severe and dramatic. The important thing is to take it in your stride, and try to avoid getting angry, anxious or upset.
Investing is for the long term
Investing is more about emotions than it is a high IQ. Even though we say we won’t, most in the heat of the battle decide to sell in the face of fear. Many of us know we shouldn’t react, but emotions overcome us and we do. Looking back at 2008 during the recession, the best investors were those who hung in and didn’t panic and withdraw their investments, therefore locking in their losses (changing KiwiSaver funds is a type of withdrawal here too). Even better were those who were buying when the world was selling. It wasn’t easy, let’s make that very clear, but they benefited significantly over the next few years as markets rebounded.
A report for the Financial Markets Authority (FMA) , written about by RNZ, showed a relatively large number of young people switched into conservative funds during the early days of the Covid-19 pandemic, and subsequently missed out on the rebound in financial markets, locking in their losses. Knee-jerk reaction changes based on the market can have significant financial consequences further on.
Patience is the key too
Being patient means you are willing to wait until your plan materialises. Building wealth and financial security takes time and you'll likely encounter financial challenges along the way. But viewing your finances and investments as a lifelong journey can help you remain patient and stay on course despite these challenges. If you haven’t received financial advice and the last few months have been particularly unsettling, maybe it’s the time to talk with an expert. There is inherent value in a trusted relationship with someone who can travel with you on your investment journey. Another reason for anxiety could be your investments are not set up to suit your personal situation and risk tolerance. An adviser can help with this.
Tips for staying calm in a market dip:
- Don’t check your account too often - every six or 12 months is good for most people
- Turn your thinking around. For example instead of thinking “my KiwiSaver balance is dropping”, change to say “My KiwiSaver contributions are buying more shares at better prices, which will help my future
- If Facebook groups and other forums are making you anxious, reduce the time spent here
- Be careful who you receive advice from. Trusted professionals are always best.
- Speak to your financial adviser. Advisers can be a great support during tough times
- Contact your KiwiSaver provider. If you’re feeling anxious, they are there to provide support.
- Focus on the long term. Think of your investment goals that are 5 or 10 years away.
- Making decisions about your investments is best done when markets are calm, not during a dip
Information correct as at February 2022. Pie Funds Management Limited is the issuer and manager of the JUNO KiwiSaver Scheme. Click here for our Product Disclosure Statement. Any advice is given by Pie Funds Management Limited, and is general only. It relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees if you act on any advice. As manager of the Scheme we receive monthly fees that are determined by your balance and whether you are 13 years or over. We will benefit financially if you invest in our products. We manage any conflicts of interest via an internal compliance framework designed to ensure we meet our duties to you. For information about the advice we can provide, our duties and complaint process and how disputes can be resolved, visit www.junofunds.co.nz. All content is correct at time of publication date, unless otherwise indicated. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary. Please let us know if you would like a hard copy of this disclosure information.