Money lessons for the times

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The quickest way to lose money right now is to move investments into cash, writes financial adviser Janet Natta.

At present, the financial markets have fallen sharply in a very short space of time.  Financial markets hate uncertainty and we are living in very uncertain times. 

To try to stop the spread of Covid-19, Governments have closed down either sectors of their economy or their entire economy.  This is why Governments are introducing monetary and fiscal policy stimulus, the likes of which have never been seen before.   As the economist Tony Alexander explains it, they are time lords trying to shift our economy through time while keeping it in suspended animation.  We basically need to get from here to there in one piece, and then life will restart. 

As an aside, many of the companies that you are invested in through your KiwiSavers and investment portfolios are doing very well at the moment.  The transport companies like Mainfreight are working 24/7 to keep our supermarkets stocked.  Facebook, Zoom and Google are having massive increases in internet traffic as people go into self isolation.  People are using Visa and Mastercard to buy goods from Amazon, Ali Baba and JD.com.   Streaming services are in high demand.  Shareholders in these businesses will reap the rewards from their higher profits when markets re-balance themselves.

As we have seen from China and South Korea, the time from total lockdown to no domestic transmission is about two months. Following the initial lockdown, it takes two to three weeks before the rate of new infections stops rising.  Italy, God bless them, must be getting close to the top of that curve now.  Others are just starting out on the journey. 

At some point, global transmission rates will start to fall, especially in Western economies.  Once that happens and social distancing is relaxed, things will bounce back very quickly. 

The current drops in financial markets will be reversed and reversed very quickly.  

If you have sold out of shares and property assets and gone to cash, you will not be part of that recovery.    You have solidified the financial loss that your investment has made, and you will not have the opportunity to get that money back.  

Fear and greed repeated leads to broke
From Carl Richards’ “The Behaviour Gap” (with thanks)

By the time that you work out that we are in recovery, send your form off to get a switch actioned so that you are back in shares and property, and the investment manager actions the switch, you will have MISSED the best part of the recovery.    The biggest gains in a recovery are usually made in the first two weeks, and you need to be there on Day 1. 

There is no doubt that this is going to generally be a short term event for financial markets and there is a reasonable possibility that things will get worse in the next few weeks.    In six months time, we will all be having coffee and congratulating ourselves for making it through.    PLEASE DO NOT have created a permanent drop in the value of your future spending because you acted out of feelings and not out of logic. 

  • Janet Natta is a financial adviser and director of Smart Money Advice, offering investment portfolio construction and management services to clients throughout NZ, as well as comprehensive financial planning advice to assist clients to build and protect wealth to achieve their dreams.

DISCLAIMER: The information contained in this article represents the views of the author. It is based on information believed but not warranted to be correct.   Any views or information, whilst given in good faith, are given with an express disclaimer of responsibility and no right shall rise against any of the authors or Smart Money Advice or their employees either directly or indirectly out of any views, advice or information.

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