Mark Lister, 31 March 2023

It’s been a difficult ride for investors, particularly those who’ve entered the fray more recently.

Last year was the worst for shares since 2008, while the housing market suffered its biggest 12-month decline in history.

Even conservative assets fell, with fixed income posting negative returns too.

The only other time shares and fixed income have fallen in unison is 1994, such has been the uniqueness of this period.

Investors who’ve been around longer are probably more relaxed.

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Not only are they more accustomed to dealing with volatile markets, but they would’ve enjoyed many good years in a row leading up to 2022.

The typical diversified portfolio rose consistently for the 13 previous calendar years, generating healthy returns north of eight per cent per annum.

For those who started investing in the past 18 months, your experience will have been punctuated by a slow, depressing decline in asset prices.

That’s due to unfortunate timing, but there are a few things you should keep in mind to ensure you stay on course.

1. Remember what you're here for

If your investment objectives haven’t changed, neither should your strategy.

Most of us are investing in the hope of meeting our long-term goals, which are usually some five, ten or twenty years into the future.

With that in mind, there is little sense to react to weekly, monthly or even yearly volatility, as tempting as it can be at times.

It's likely that shares and property are still a key part of your long-term plan, and we know that over longer timeframes these will deliver strong returns with remarkable consistency.

Investing isn’t about chasing the ups and downs of the market, it’s about managing a well-constructed portfolio in line with your goals and objectives.

The best way to do that is to remain disciplined and stick to your strategy.

2. Stay diversified, there are always opportunities somewhere

Shares get all the attention, but many investors also have some conservative assets in their portfolio (or KiwiSaver fund).

New Zealand corporate bonds had a rough ride in 2021 and 2022, as interest rates rose from the lowest levels in history to something more normal.

That process culminated with the five-year wholesale swap rate hitting its highest level since 2010 in October last year.

It’s fallen back since then, as investors have pounced on the highly attractive yields and also become more nervous about the outlook.

That’s seen fixed income deliver very solid returns in 2023, with the last three months proving to be the strongest period in almost three years.

It’s been a similar story in the US. US Treasury bonds have performed better than US shares this year, and those with a mixture of both will have benefitted.

3. Keep your eye on the long game

Shares and property are fantastic long-term assets that will growth your wealth, beat inflation and provide steady, growing income streams.

Since 1990, New Zealand house prices have risen 6.1 per cent annually, while New Zealand and US shares have delivered gains of 8.7 and 9.8 per cent per annum, respectively.

However, the price we pay for those higher returns is volatility, which means we should expect plenty of ups and downs along the way.

Even in that relatively short period, US shares have experienced 15 declines of more than ten per cent, four declines of more than 20 per cent, and there have been four recessions.

This is par for the course and to be honest, it’s what you signed up. You’ll only do well if you can maintain a long-term mindset, rather than panicking and getting cold feet at every turn.

The market always recovers from those periods, while the strongest gains often come as we rebound from the rough patches.

4. For new investors, recessions and rough markets are your friend

Who likes investing when the market is trading at all-time highs? Not me.

If you’re on the cusp of cashing up your share portfolio or selling your rental property, periods of market weakness can be awful (although people in that situation probably should've invested more conservatively anyway).

However, if you've got an investment time horizon of five years or more, relax. This too shall pass.

In fact, if you’ve got cash to put to work or you’re still in the accumulation phase of your investment journey, you should be rubbing your hands and hoping for more volatility so you can do more buying.

5. Lean on your adviser, they’ve seen this movie before

If you’ve got an investment adviser, lean on them for support during times like this.

Market corrections tend to happen every two years or so, while recessions or bigger market falls typically come every 6-7 years.

Your adviser will have navigated periods like this before, probably more than once.

They can ensure you stay disciplined, keep your cool during unnerving periods, and help you stay on track.

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