Lock up your investments and leave them. If you're saving for the long term, sometimes choosing investments well, then virtually forgetting about them for a time is the best thing to do.
That's really what KiwiSaver investments are about. If you don't have a really good reason to cash up, such as buying your first home, and you're in an investment that will grow at the best rate for someone with your risk tolerance, then the set and forget approach will repay you handsomely when you finally retire.
So-called timing the market where you buy and sell, or switch frequently, doesn't usually work for amateurs.
Murray Weatherston, financial advisor and economist at Financial Focus, says, in theory, if you wanted to maximise your investment growth, you'd buy at the bottom, and you always sell at the top of a market. "But nobody can actually do that," says Weatherston.
"When you try to pick where markets are heading, invariably you'll earn less than had you stuck through thick and thin," says Weatherston. "There's plenty of research around that suggests that the average investor doesn't earn anywhere near what the market would have given them what they just bought and held."
So long as you have the stomach for it, the winning formula always seems to be to pick the asset allocation that suits your risk profile and hang on to it through thick and thin.
That thick and thin can be very elastic. In February/March 2020 when KiwiSaver and other investments went into freefall, most commentators were saying: hang on, hang on, hang on, at the same time as people were panicking and switching to conservative funds. "People who sold out, got criticised, says Weatherston. As it turned out, they had done the wrong thing. In another crisis the same action may have worked for them.
In the case of both the dotcom bubble burst and the Global Financial Crisis (GFC), markets fell by nearly 50 per cent and took years to regain the lost ground. If you'd sold out when your investments were 20 per cent down and re-invested that money at the bottom of the market you would have done handsomely.
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The lock up and leave approach, however, stops people doing dumb things at highly stressful times, such as switching to conservative funds at the bottom of a market when it's almost certainly too late.
The point about holding onto well chosen investments is that they will ride out these short- or medium-term bumps. If you'd bought an NZX 50 fund in 2007 just before the GFC hit, but ridden through the various headline grabbing falls, it would be worth well over three times what you paid for it now.
There are of course times to dump investments. If they really are duds, then cut and run. Or you may have other opportunities in life such as buying a business.
Beware that you'll find an awful lot of vested interests out there telling you to buy, sell or hold onto investments for their own benefit. Stockbrokers, for example, make money every time you buy or sell, points out Weatherston.
Fund managers don't want you to cash up. They make money by holding onto yours for as long as they can, says Weatherston. You may also make money of course. The point Weatherston is making is that a fund manager isn't likely to tell you to sell your investment. It's not in their interest.
I would add that financial advisers can help you through this conundrum. An advisor who charges fees in preference to commissions is more independent. Those who earn mainly commission are sometimes keen to clip the ticket each year by encouraging you to switch to a different fund manager. They pocket a better commission than they get if you stay in the same investment.