The New Zealand share market just keeps on growing but some worry that after such a long period of growth, a crash seems inevitable.
Financial journalist and author Mary Holm advises investors to stay put.
The average investment in a NZ share fund doubled in value between March 2009 and March 2014 and then doubled again by May this year.
This is great for not just share investors but many people in KiwiSaver – all those in middle or higher-risk funds. The worry is that after such a long period of growth, a downturn seems inevitable. Should people move their money before the crash?
Mary advises against it. Nobody can time share markets well, and you could miss out on further big gains. Research shows that people who move in and out of the market, trying to time it, end up with much less than those who stay put.
When the NZ share market fell in the 1980s there was almost always a healthy gain of 13 to 24 percent in the following year, Mary says. The exceptions are the 1987 crash and the 2008 global financial crisis, but even then things came right within two years.
This is not surprising, she says. In downturns, shares tend to be "oversold" and people realise there are bargains to be bought, pushing the market back up. Internationally, markets that have done really well often then do really badly the following year, and the reverse.
The best way to cope with up-and-down share markets is to ignore what's happening, Mary says. Keep drip feeding into your investment – which happens automatically in KiwiSaver – and you'll do well.
However, if you realise you couldn't cope with seeing your investment drop for a while, gradually move now to a lower-risk investment, and stick with it – regardless of what the markets are doing.
You can listen to all of Mary Holm's chats with Jesse Mulligan here.