How confident are you about your investments?
After experiencing dramatic losses in the financial markets, investors look a little less confident regarding their investments as the COVID-19 pandemic persists and is materially influencing several factors in the environment.
The year 2019 ended on a favourable note for the equity investors and turned out to be one of the best years for them. If researchers are to be believed, the return in 2019 constituted around one-fifth of the total returns for the worldwide shares sector in the decade, while the S&P/NZX 50 index surpassed its end-of-2018 resting level and recorder nearly 32 per cent growth as on 31 December 2019, when compared to December 2018.
Now that we are in the year 2020, it has been a nightmare for many investors across the globe until now, all thanks to the coronavirus pandemic. The mounting uncertainties due to the infectious disease have landed the investors in a state of flux. Remaining highly uncertain about their investments, investors are shying away from the markets due to the high volatility and unpredictable behaviour of the market forces.
However, optimism is expected to flow through the NZ equity market since the two-week long lockdown has succeeded in flattening the curve of novel coronavirus cases. It is further anticipated that the upcoming phase will ensure the complete vanishing of the disease.
An investor might always have some room for making better choices while investing and making enhancements to his/her portfolio. However, the identification of improvements should be based on valid and feasible criteria.
As of now, while much has been done to curb the spread of the disease in New Zealand, a complete win over COVID-19 is still pending. New Zealanders have the opportunity to revisit their investments, analyse the feasibility and assess the risk related aspects of their investment assets in the long term as well as short term.
While investing, one must keep in mind that nothing can be guaranteed for the future based on past performance. No matter how lucrative the investments have been, there are always chances for an investor to lose something or everything. This is evident from the recent selloff throughout the global equity markets, prior to which the stocks were touching fresh highs and markets were bullish.
Change is the only thing that is constant, especially in terms of market investments amidst currently prevailing uncertain times. Consistent low-interest rates, a slowdown in the economic growth, and businesses struggling to keep their operations, among other challenges, are bound to influence the earnings of the investors, at least in the short term.
To ensure a stable stream of earnings, investors shall require a more robust, fortified, and sound investment plan to govern their portfolio. This can also be characterised by several other measures like a smart choice of assets to constitute a quality portfolio, continuous and rigorous monitoring of events in the environment, as well as vigilance in reviewing portfolio performance.
With this backdrop, let us explore what more can be considered by the investors in New Zealand to navigate through the highly uncertain 2020 smoothly.
Improvising Investment Goals
As mentioned earlier, change is the only constant in the world of investment. Therefore, changing the environment and attitude of the markets and its forces requires a quick response from the investors. The goals of an investor should be dynamic enough to respond to and get in line with the changing market trends.
Goals of an investor may include savings to buy a house, planning for the education of the child or retirement. These goals might be challenging to fulfil and therefore, defining goals at the initial stage brings clarity in the purpose of investing.
With changing conditions, an investor can make a shift in his strategy to become more aggressive or play defensive while protecting his investments from any potential loses.
Reconsidering Investment Beliefs
When you begin to think of investing, having clarity over the beliefs related to investment is a pre-requisite. Any investor, whether a professional or a novice, experienced or inexperienced, competent or incompetent, needs to figure out his/her underlying beliefs with regards to the investment.
These beliefs may be assessed through pondering over a few aspects of investment like:
- The most appropriate way of investing.
- Things that add value to your investment, like active management of the funds invested.
- Chalking out a mix of funds and assets to invest.
- The extent of diversification in the portfolio.
- Importance of sustainable investment as well as focusing on businesses with strong fundamentals or short-term growth.
Variation in the answers to these questions is evident due to the varying behaviour of the individual investors and their knowledge of different aspects related to investments. Moreover, a significant help can be drawn from individual research as well as market insight to make an informed decision.
Ensuring Evenness in the Portfolio
Striking a balance between the risk-bearing ability of an investment as well as the ability to yield returns is an imperative element to consider for an investor. Moreover, a healthy balance between asset allocation as well as investment beliefs and life goals are also significant for an informed investment decision.
A rebalance may be required from time to time as the situation in the market changes with varying performance of investments over time. For example, slight turbulence in the market may cause a type of asset to suffer losses. However, investment in another asset with reduced risk may help to offset the losses.
Adaptive Asset Allocation
The allocation of investments in various assets is highly driven by the beliefs of an investor as well as his/her personal objectives. There may be a change in the personal objectives of an investor or his/her investment beliefs over time, which shall require regular review to stay in sync.
Choosing appropriate assets for investments may depend on several factors such as risk tolerance, and the extent of diversification, among others. Constant vigilance over the changing market conditions should help an investor define a dynamic and adaptive asset allocation.