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6 scary things about investing that are not actually scary

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Starting your investment portfolio can be quite intimidating and scary. For investors, getting over the fear of losing money in the stock market can be difficult. There are many fears surrounding the stock market and investing in general, but they may not be as scary as you think. A lot of people know that investing for your future is important, so don’t let these fears stop you.

1. Volatility of the market

Volatility is the short-term up and down movement of prices in the stock market, which may sometimes lead to investment losses. There is often volatility involved when it comes to investing, especially in the stock market. High market volatility may often seem scary for investors, but it shouldn’t be something to be scared about. Despite any major dip from economic events, the markets have always recovered with an increasing trend.

You should know more about yourself as an investor by considering your volatility tolerance while building your investment portfolio, and adjust your investment strategy accordingly. With KiwiSaver, volatility risks could be minimised by being in the right KiwiSaver fund type, while also taking into account your investment goals and your investment time horizon.

2. Possibility of losing money on my investments

If the market falls in value, you do have the possibility of losing the value of your investments, but not necessarily your money. There is a temptation to sell your long-term investments that are falling in value to avoid any further losses. But this could essentially “lock in” your losses by selling your investments low.

Your investments are likely to go up and down in value, and making changes on your long-term investment plan based on only short-term considerations could cost you money. Sometimes it may be better to just do nothing. Ride out the volatility and wait until the investment value to go back up when the market recovers.

3. Knowing when the best time to invest is

With ups and downs in the stock market, many investors wait for the best time to invest. Unless you can predict the future, there is no accurate way to time your investment or to know when the perfect moment is to buy and sell in the market. Your time in the market is actually more important than your timing in the market. You need to give your investments time to grow to start seeing results.

A slow and steady approach to long-term investing is preferred than trying to time the market. Waiting for the perfect moment to invest may cause you to miss out on all the smaller gains which add up over time. Whenever you are ready to invest is exactly the right time for you to invest. Depending on the time frame of your investments, you could stick around long enough to ride out these short-term fluctuations in the market.

4. Not having enough money to make good returns

It may sometimes feel like you need to have a ton of spare cash to be able to make any significant returns on your investments, which may turn you off from actually making your money grow. This is valid for those who may have to use all of their income to cover expenses or to build an emergency fund, but when you have extra to spare, you could have enough to start investing. Though you won’t see great returns straight away, it will add up overtime with regular investing.

For those who live in New Zealand, KiwiSaver is a great way to start regularly investing your money. You could invest as little as 3% of your income into your KiwiSaver account and let it grow with the help of compounding interest along with employer and government contributions. If you are not an employee, you could still make voluntary contributions to your KiwiSaver account. Investing just a little bit today, could reduce the amount you will have to save in the future.

5. Not having enough money to diversify my portfolio

Diversification can be achieved by having a varied mix of assets within your investment portfolio and it is important to minimise diversifiable risk. Diversifying your investments by holding shares in different companies from multiple industry sectors and countries, along with having different asset types in an investment portfolio could be difficult for smaller investors.

For smaller investors or those who do not want to pick individual stocks, investing in ETFs (Exchange-traded funds) and mutual funds could be a good idea to diversify. Both ETFs and mutual funds hold varied mixes of assets within their funds.

KiwiSaver is a great option for investors to easily diversify their portfolio. Most KiwiSaver funds are already well-diversified, with varied allocation of different types of assets for each of the funds available. As there are several different fund types, you should make sure that you are investing in a fund that’s most suitable for you. 

6. Having to build an investment plan

Trying to build an investment plan that will work for you could be quite difficult. But it is necessary, especially for smaller investors to be able make the most out of KiwiSaver. When building a plan, it is important to be prepared by considering the time frame of your investment, your financial goals, etc. to be able to develop a clear, long-term financial strategy. 

Building a financial plan and sticking to it is important, and National Capital can help you with that. The first step is for you to submit our KiwiSaver HealthCheck in order for us to get an understanding of your situation and financial goals, to be able to recommend the most suitable KiwiSaver fund for you. Then one of our Authorised Financial Advisers will formulate a KiwiSaver investment strategy for you, tailored to your personal situation, which will help bring you closer to your financial goals.

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