Brace yourself for more big stockmarket falls as volatility spikes in the coming months, warns Pie Funds chief executive Mike Taylor.
Wall Street tumbled again this morning with the Dow Jones Index off 400 points - or 1.68 per cent. NZX is off nearly 1 per cent in the past two days.
The latest dip follows Wall Street's correction in early February which, despite a strong recovery, still made for the worst month in nearly two years.
In times of volatility it was important for investors to step back and take a long-term view - and ensure they had their investment settings in line with their risk appetite.
"It's all about the sleep at night test, if you wake up in the morning worried about what the Dow Jones is done you probably have too much exposure to the market," he said
"If you are uncomfortable with risk in the market then you need to take a progressive approach, which is to raise cash all the way along.
"However, if you are a very long-term investor - like people in KiwiSaver with 20 or 25-year horizons - you should always leave your money in a growth product and you just have to ride out these ups and downs."
There were powerful opposing forces at work on US markets so despite big falls it was also still possible we could see market test new highs, Taylor said.
"We haven't had that type of volatility for a couple of years," Taylor said.
"They fell 10 or 11 per cent, it had a bounce back, but I'd be extremely surprised if in the next couple of weeks its doesn't re-test those lows," he said.
"If it doesn't, then what it does tell us is that we are in a very strong market and it won't be long before it [the S&P500] breaches 3000," he said.
"There's a lot of stimulus going through the US economy at the moment, Trump's tax cuts have been passed and that's adding fuel to the fire."
While that was blowing out deficits it means that in the short-term corporate earnings could be very good, Taylor said.
If you wake up in the morning worried about what the Dow Jones is done you probably have too much exposure to the market.
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But pushing back against that were investor fears about rising interest rates being played out on bond markets.
Every upwards move of yields for US Treasuries, every piece of strong inflation data and every indication from the US Federal Reserve that it is ready to hike rates seems to have a direct and negative impact on equity markets.
"Interest rates will go up, that is part of the cycle," Taylor said.
That wasn't something to be afraid of but the speed of acceleration was an issue, he said.
"It is going to create pressure because we've gotten used to low rates but we're not going back to an era of floating rates above 10 per cent that we saw in 2007."