Ask An Expert: I Invested $2000 & It’s Barely Moved. What Should I Do?

Wednesday Jan. 17, 2024

Viva

Collage / Julia Gessler

Milford private wealth client manager John Bailey helps a reader decide whether to stay the course.

Q: I invested $2000 in an investment fund a year ago and it’s barely moved. What should I do?

A: Whenever you’re investing you want to consider three key things: your investment goal, your time frame and your tolerance for risk.

Consider why you invested in the fund in the first place. Did you have a particular goal in mind? Have your personal circumstances changed since you started the investment? Has your investment goal or tolerance for risk changed?

If you’re still confident the fund can deliver on your original goal, generally the best course of action is to do nothing, allow the fund to work its magic over the minimum recommended investment timeframe and stay the course.

The pros of using a pro

One benefit of using a fund manager over investing yourself is that your investment is being professionally managed while you get to enjoy your life hassle-free — meaning you don’t have to spend time doing all the investment work like analysing and deciding which companies to invest in.

When you invest in a fund with a fund manager, your money is pooled together with every other investor in the fund and then the fund manager will make decisions on which financial securities (shares, bonds, cash) to invest in, both locally and abroad. The performance of these underlying securities will determine the returns of the fund.

Fund managers will diversify your investment making sure to manage the risk, by not investing too much in any one company — some of the larger investment funds for example, will invest in hundreds of securities.

As fund managers invest large amounts of money on behalf of their clients, they sometimes get access to exclusive deals offered to large investors, global share offerings or even better rates of return on cash held. These benefits get passed on to their clients.

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Lastly, another attractive prospect of investment funds is liquidity. This means you have quick access to your money in as little as three business days, should you need it. This gives investors the best of both worlds with the potential for higher than cash returns combined with access to their investments should they need it.

What to look for

There are many different investment funds out there representing many different markets, investment objectives and fund manager styles.

Major qualities to look for when choosing an investment fund include performance, investment strategy, price, liquidity and structure.

While past returns are not a reliable indicator of future performance, looking at long-term historical performance can give you an idea how skilled a fund manager is at investing.

The investment strategy is important too — are they an active manager, actively trying to beat a benchmark? Or are they a passive manager who passively invests in the whole index? These questions help determine the price: how much you’re being charged for their services.

For passive funds, the price is likely to be lower than for active funds, with passive funds typically replicating a market index of benchmark, whereas active fund managers have a team of investment professionals analysing companies and markets every day, striving to outperform a market index or benchmark.

Looking at performance after fees and other services is important too, as some managers may have a higher price, but it might be worth the price if the net returns or services they provide are stronger. Liquidity and structure are also important factors to consider.

Can you access your money quickly if there was a family emergency? And what are the tax implications of the funds you are investing in? New Zealand has a PIE (Portfolio Investment Entity) structure that is very tax efficient, effectively lowering the maximum tax bracket from 39 per cent to 28 per cent.

When will I see my investment pay off?

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For those who entered the investment market in the past two years, this has been the most volatile time the share market has seen in a long time. It also reinforces that gaining returns from investing in the share market is a long-term game.

As to when you can reasonably expect to see some growth, this entirely depends on the investment fund. For example, if you are investing in a growth or aggressive fund that allocates more of its total investment to shares, you generally need to take a zoomed-out approach.

As shares are the most volatile asset class in the short term (yet one of the best-performing asset classes over a longer time), you want to ensure you have an appropriate investment time frame to ride out any volatility that can occur in markets.

Growth funds investing in shares generally require seven to 10 years or more to achieve their full potential. It’s important to look at the minimum recommended investment timeframes of each fund you invest in and continually compare that to your individual investment goals and timeframe.

Annual check-ins are a step towards investing success.

John Bailey is a private wealth client manager at Milford.

This article does not take into account your investment needs or personal circumstances. It is not intended to be viewed as investment of financial advice. Past performance is not a reliable indicator of future performance. Investment involves risks and returns can be negative as well as positive. Milford Funds Limited is the issuer of the Milford KiwiSaver Plan and Milford Investment Funds. Please read the relevant Milford Product Disclosure Statement at Milfordasset.com.

Before investing you may wish to seek financial advice. The Disclosure Statements for all Milford Financial Advisers contain more information and are available on request, free of charge. See our Financial Advice Disclosure Statement at Milfordasset.com/getting-advice.