Investors feeling nervous about their money in the wake of Covid-19 are being urged not to panic.
Although up to 60 per cent of Kiwi investors say they lost money as returns dipped in the wake of the first pandemic lockdown (according to a Financial Markets Authority survey), leading market analyst Chris Di Leva says those who "stayed the course" will, in many cases, have more than recouped losses in the subsequent market recovery.
Di Leva, multi asset specialist with Harbour Asset Management, says one diversified managed fund managed by his company has risen 8.8 per cent this year, despite the March lockdown.
"This is the way investing works," he says. "But unfortunately some batten down the hatches and go into their shells in times of crisis by switching their money out of higher risk funds. It is definitely a panic response and recent events show many missed out on the market bounce-back as a result."
He says the pandemic created a huge shock in the global economy putting investors under immense pressure and many responded by either cashing up or putting money into more conservative funds aimed at preserving their savings (risk averse KiwiSaver account holders moving $1.4 billion out of higher growth funds being one example).
"We've even seen the amount households invest in term deposit funds tick back up again," he says. "But with rates at 1.5 per cent at best, term deposits no longer cut it; investors may be better advised to hold tight and look to longer term solutions such as managed fundsbecause if they want the potential of better returns they really have no choice."
He believes the latest lockdown – or any future lockdowns – won't have the same negative impact as the nationwide Level 4 lockdown did in March and April: "We know a lot more about Covid now and are dealing with it more effectively so I don't think it will have the same impact this time."
The fund Di Leva manages, the Active Growth Fund, is up 8.8 per cent this year despite the Covid-19 crisis - thanks to the market rebound - and offers a good "real-life" example of how investing works.
"An investment in this of $100,000 in January would have fallen to $91,574 by the end of March as the impact of the pandemic hit," he says. "However by the end of July the loss would not only have been recouped but the original investment would have grown to $108,840.
"Investors who stayed the course would have done far better than those who panicked and sold near the market bottom."
His comments come following the Financial Markets Authority (FMA) 2020 Investor Confidence Survey which showed that while 60 per cent of investors experienced losses as a result of Covid-19, 71 per cent were optimistic the pandemic will pass and markets recover. The survey also revealed that 23 per cent are planning to increase investments or start new ones in the coming year.
Di Leva says many Kiwis are afraid of outliving their income and don't feel confident about making financial choices to support themselves in retirement: "With persistent decreases in interest rates and the impact of Covid, term deposits are no longer seen as the easy option.
"But now, more than ever, New Zealanders need to understand their risk profile as they no longer get decent returns from minimal risk term deposits – for many they just aren't a viable option anymore," he says.
"Even if you won $5 million in Lotto you couldn't 'live like a King'. Investing this in a term deposit at 1.5 per cent will produce $75,000 before tax, liveable but not to the extent people used to think when they said they'd win Lotto and live off the interest."
He says most people know financial portfolios exist but believe they are out of their reach - this attitude seemingly reflected in Reserve Bank of New Zealand (RBNZ) data which shows New Zealand households have $101 billion in term deposits (to the end of June 2020) compared to $63 billion in KiwiSaver and $43 billion in managed funds.
"How do you make good decisions and pick stocks when you aren't confident you know enough?" Di Leva says. "As a result a lot of Kiwis take a DIY, she'll be right approach to investing or they'll talk to their mates. Unfortunately there is a long history of bad investments and we've seen a lot of people hurt; it shows how tough it is to pick stocks yourself."
Di Leva says in contrast to term deposits, managed funds are performing well and managers like Harbour blend high and low risk investments to help smooth the journey for investors.
He says two of Harbour's managed funds that are designed as 'one-stop-shops' for investors seeking steady distributions are earning good returns. The Active Growth Fund, a higher risk option, currently distributes five per cent while the lower risk Income Fund is distributing 3.25 per cent annually.
He says a distribution helps investors with budgeting and knowing a payment is coming despite the ups and downs in their capital value.
"A fund manages the asset risk and despite the market volatility this year they have performed well," he says. "People can also opt for funds which pay a set distribution of monthly payments which suit lifestyles better than taking out entire lump sums which tends to happen with term deposits and KiwiSaver."
Di Leva says investment used to be the preserve of wealthy people only." But today it is available to all and people can access capital markets with a few hundred dollars," he says. "At Harbour we can facilitate investments at all levels, including small amounts, and diversify funds in different sectors and geographical areas around the world."
This article does not constitute advice to any person (www.harbourasset.co.nz/disclaimer). For more information go to www.harbourasset.co.nz