INSIGHTS BLOG

IS NOW A GOOD TIME TO BE INVESTING?

Craigs Investment Partners

There’s no two ways about it – seeing your savings take a hit due to market volatility is never nice.

It can be tempting to turn the tap off when things are tight, but if you have the means, don’t stop investing! If you are in KiwiSaver and still earning income, continue with your regular contributions to take advantage of the Government contributions and any matching employer contributions available to you – as it could pay off in the long-term.

KiwiSaver and Craigs mySTART enable you to benefit from what is known as dollar-cost averaging. This is the simple concept of investing a consistent amount of money on a regular basis – irrespective of whether the markets are up or down.


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Why dollar cost averaging is a good strategy in markets like this:

a) As share prices drop - you get to buy more shares for the same amount of money you invest regularly.
b) You don’t have to try and time the market – your regular investments will cover the bases.

Investing regular sums of money on a regular basis means you don’t have to stress about when the right time is to buy shares in a company.

As an example of this, say you wanted to buy $3,000 worth of Ryman Healthcare shares in the first quarter of 2007, some time before the onset of the GFC. Hypothetically, you could’ve bought them all at once at a price of $2.15 or you could’ve spread your purchases over a number of quarters (let’s say 12 – so $250 each quarter). The chart below demonstrates that as the share price fell, you were able to buy a greater number of shares at lower prices with each instalment.

Dollar-cost averaging in action

Dollar-cost-average-graph2

This increased the value of your holding at the end, with the dollar-cost averaging approach resulting in an end value of $3,517, compared to a value of $2,902 if you had bought in a lump sum at the start.

The dollar-cost averaging approach protected the downside

table dollar cost averaging or lump sum investing2

So stick to your plan, stay the course and keep your focus on the long-term.

Are there any silver linings from this situation?

Downturns could be a good time to buy that company you’ve always wanted to own but have thought too expensive. You may find yourself with additional savings at this time, or you may need to tighten your belt. Take a breath and reassess your financial position. We recommend getting advice and ensure your investments match your risk profile.

How can Craigs help me appropriately manage my investment?

Craigs was established in 1984 and over the subsequent 35 years or so we’ve experienced many notable market events – both good and bad. The advice we offer through our network of investment advisers is your biggest advantage in achieving your investment goals. Now is a great time to use our knowledge and expertise to help you navigate the current situation. All of our advisers are supported by one of the largest research teams in New Zealand.

Visit our Insights blog at craigsip.com/insights, or subscribe to our fortnightly Market Insights email newsletter to keep up to date with developments direct from our research team.