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Pie Funds expert opinion: The long game

Investing isn’t about instant rewards. You should have a long-term horizon, says Mike Taylor of Pie Funds. He explains why.

9 March 2022

So, you want to be a successful share market investor? There are a few key things you should do.

The most obvious ones are diversifying your portfolio and doing some research.

But I believe taking a long-term approach to your investing is one of the most important.

When people invest, they often want instant results. Why? With property, many of us are happy to buy and hold properties for years, even decades, and ride out market highs and lows.

Investing in other asset classes should be no different.

But taking a long-term approach to your investing can be easier said than done. So, how do you do it?

Choose your strategy

An ‘investment strategy’ is a plan to help you reach your goals. Everyone’s strategy will be different and based on how long you have before you’ll need the money, your risk tolerance, goals, and financial situation.

For most people, investing is for the long term. Sure, there are some people who are traders, which means they buy and sell assets like shares or properties often.

But most people will be investing for at least a few years. A financial adviser can help you work out the right investment strategy for you.

Once you’ve got a strategy, stick to it. Review it from time to time or when your circumstances change.

Diversification and risk

Investing for the long term helps reduce your risk. That’s because over short periods, markets can go up and down. But over the long term, your investment returns are likely to be positive.

After all, that’s why people invest – to make returns.

Investing for the long term allows your investments time to recover if the market falls in the short term.

Diversifying your portfolio for long-term investment can also help reduce your risk. Setting up your portfolio to cover a range of asset classes, regions and sectors might form part of your strategy.

The hope is that, by diversifying, if the market dips, not every investment will fall in value. Some will perform better at different times, and over the long term these returns should average out.

‘Dollar-cost averaging’, which is effectively drip-feeding money regularly into an investment over a long period, also can help reduce your risk.

Manage your emotions

When you can manage your emotions, long-term investing becomes much easier and much more effective.

It’s not healthy to panic or worry about your investments, and it can make investing stressful.

For many people, managing their emotions can be one of the hardest things about investing. We saw this during the large market dip in early 2020 due to Covid-19.

Many KiwiSaver investors saw their balances drop significantly, and panicked and changed to more conservative funds, with some locking in large losses.

Markets usually recover over the long term, so try to stick to your strategy, and avoid checking your investments too regularly.

Do your research

How a fund has performed in the past doesn’t guarantee its future performance. But long-term performance can give you some helpful insights when you’re selecting where to invest your money.

There are two ways to research and assess an investment fund before investing:

First, look at the investment strategy. You’ll find this in the fund manager’s disclosure documents.

The second way is to look at the fund’s long-term track record to check that the person who achieved that track record is still around. If you’re unsure, ask the
fund manager.

It’s really no different to sport. Dan Carter had a great track record of kicking goals, but that didn’t mean that he would achieve 100 per cent in every game.

A track record is a good guide, especially if it’s consistent over a long period of time. More importantly, a track record can highlight funds or providers that consistently underperform and rank poorly over a long period.

Independent investment research company Morningstar has credible comparison tools that help you compare funds. Other useful comparison tools are Sorted’s Smart Investor tool and the Financial Markets Authority’s KiwiSaver Fund Finder.

Investments shouldn’t be something
you lose sleep over. Investing for the
long-term can help ease the short-term stress, reduce your risk, and help you reach your goals.

Tips to stay focused on the long-term

Don’t check your investments too regularly.

Avoid getting caught up in any panic on social media or on news sites.

Have long-term goals associated with your long-term investment horizon.

Find ways that work for you to help you stay rational about market dips.

Reach out to a financial adviser for help and support if you need it.

Keep reminding yourself of your strategy.

Life isn’t all about investments and money. Find other things that you can put your energy into as well.

For more information about Pie Funds Management, go to www.piefunds.co.nz.

Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.

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