- Withdrawing/ changing your investments after a period of negative return may cause you to realise a loss
While your funds are invested, it generally moves with the “ups and downs” of the market (with varying degrees depending on your portfolio’s exposure to shares). Once you withdraw/ change your investment after a period of negative return, the loss will have been realised.
Changing the funds to a “cash type” investment may look like an attractive alternative, but historically investors who have held their investment during periods of market uncertainty have tended to perform better than those who have withdrawn their funds and invested in cash after a period of negative returns.
It's important to realise that over a shorter timeframe, such as 3, 6 or 12 months, market uncertainty can seem quite dramatic. However, short term uncertainty can be less significant when viewed over a longer time frame such as 3 and 5 years.
- Don’t confuse “time in” the market with “timing” the investment markets
Some investors try and pick the highs and lows, or when to get in and out of investment markets. For many investors, trying to time the market actually results in lower long term returns. By trying to time the market, you may find that you miss a strong period of growth and therefore may not achieve the same result as someone who had got in and stayed in. Shares, like other growth assets, tend to provide you with an uneven ride, but the potential rewards of sticking to your long term investment strategy can be higher than investing it in cash.
- Investment market uncertainty is “normal”
Investment markets rise and fall over time. As a general rule, the greater the expected returns, the higher the risk of a negative return. It's important to recognise that while no one likes to see their investment portfolio fall in value, negative returns are the price we have to pay for accessing the higher returns that growth assets provide over time. While switching to cash may make sleeping at night easier after (and during) periods of weakness, it's likely to result in lower long term returns. As an investor it is important to remember that market uncertainty is normal and you should not be thrown off your long term strategy by it.
- Consider the power of compounding (if you are making regular contributions to your investment portfolio)
One of the most important points in accumulating wealth is to allow your investment to grow through generating earnings on earnings - this is known as compounding. By starting investing early, adding to your investment (if you can) and holding your investment over time, you maximise your opportunity for compound returns.
If you sell or change your investments, you'll lose the effect of compounding and may lock in losses.
- Financial advice is important if your objectives or strategy has changed
Before deciding to sell or change to a more conservative investment option, such as cash, we strongly recommend you speak to us. It is important to ensure any change is in line with your investment time frame and long term goals and objectives.
Past performance is not a reliable indicator of future performance.
NOTE: This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.
Should I change my investments? (negative market)
- Remember your timeframe, goals and attitude toward risk (risk profile)
Your timeframe, goals and risk profile forms a key part of our recommendations to you. You need to find a comfortable balance between the level of risk you are prepared to accept and your preferred level of investment return.
If you feel that your timeframe, goals or risk profile has changed, then we may need to review these.