Reading the headlines is enough to make anyone feel nervous about the world’s financial future.
Right now, we’re hearing that coronavirus will knock $1.1 trillion off the global economy, climate change could create the next financial crisis and drought could take 1% off our local GDP. There’s no shortage of bad press, so what can a concerned New Zealand investor do?
Very little: simply have a long-term plan and diversify to reduce your risk, says Michael Cave, Authorised Financial Advisor and Director of Cave Financial. Don’t panic sell, or panic buy. Simply stick to your plan, stay the course for the long term, and make sure your eggs aren’t all in one basket.
“There are a lot of risk factors and there always will be, so always have a diversified approach,” Michael said. “We never know when a big tipping point will come along, so you can’t time the market. By taking a long-term view and diversifying, you’re doing what you can to protect yourself.”
How can you diversify? Invest both locally and globally, Michael advises. For instance, you can buy shares that track market-leading shares in the USA, Europe, or emerging economies. That helps to offset your investments in New Zealand, like your home or rental property.
If you’re planning to buy a rental property this year, consider choosing one that’s a different type of property or in a different location to your home or your current rental.
“Some people can do well with 10 apartments in the same building because their expertise means they are able to reduce their risk,” says Michael. “For most of us, it’s far safer to diversify, ideally by having Kiwisaver, a range of shares, a home and an investment property.”
It’s less exciting to have just one egg each in a whole range of different baskets, but it’s a smart, safe way to avoid the risks posed by uncertain times. As your position gets stronger over time, you can take a few more calculated risks provided you can comfortably handle the costs, Michael adds:
“The most important tip is not to overextend yourself. Too much debt will leave you at risk if things take a downturn, which could force you to sell when the market is low and take a real hit.”
Want to know more? Impression’s property owner clients have a free one-hour appointment with Cave Financial each year – get in touch to book yours in.