Stock Market Blip - Hold your course!

Oct 28

Oct 28 Stock Market Blip - Hold your course!

Index Funds, KiwiSaver, Shares, SmartShares, Sharesies, ETF

Oct 28, 2018

When the stock market wobbled recently it was all over the news. It makes great headlines like this:

‘Hang in there’: KiwiSaver investors urged to be calm as volatility hits world markets

A headline like this would have sent many KiwiSaver and share investors scrambling to check their balance thinking they were on the brink of losing it all. And yes, they would have noticed a drop in their KiwiSaver balance for sure.

I took this screenshot of the New Zealand Stock Market at 6 am on 17th October. It was looking like this and I thought of my own headline:

Sell Sell Sell - NZX 50 experiences MASSIVE PLUNGE!

Looks a little grim right? A wobbly line making its way DOWN. Oh crikey! But just to put some context around this graph it is only showing part of September and part of October 2018, an extremely short space of time in the history of our stock market. And that peak you can see in September? Well in actual fact that is showing that in September 2018 the NZX 50 hit an all-time high of around 9370! Therefore a headline like “NZX 50 falls off the back of an all-time high” might have told the story in a different way? A less alarmist way?

What about this graph:

This shows the NZX performance since January 2017. Looking a little better, isn't it? Looks to me like things have been trucking along pretty well in the last year or two.

And how about this one going back to 2002:

You can see the dip in our market around 2008-2010 when we experienced the ‘global financial crisis’ but ever since we have actually experienced a steady climb upwards with a bull market.

So, these graphs should put a little context around headlines warning us about plunges, drops, volatility, etc. If you joined KiwiSaver when it began in 2007 you have enjoyed the returns that this rising market has given you so you should not be panicking about the very tippy top of this graph where things drop off a little.

I have reached a point where I’ve learned a bit more about myself. When I heard that the stock market had “plummeted” it actually didn’t unnerve me at all, to be honest, I was on holiday and found out about it after the fact. And it took until the middle of October for me to even look at my own numbers and I only did so because I was overdue for updating my spreadsheets and I needed to take a look to help me write this blog. And I didn’t blog about it weeks ago but waited until now to prove the point to you and I that a little volatility really does not matter so much over the long term. Even since I wrote this things have changed yet again! So, for those who have been asking me “what I’m going to do”, well you have probably guessed the answer already, absolutely nothing!

Warren Buffet would say that I have not lost anything, because I didn’t sell, the value of my investments has simply changed and by my calculations, I’m down 4% (heck I calculated that number a week ago now so I’m probably down further?) If I freaked out and sold then I would have locked in my losses. But I didn’t and I won’t.

Certainly, the fact that I invest in funds (in addition to my KiwiSaver which I joined in 2007) has really taken the pressure off me too. I’ve been investing each and every month now for three years, starting with the NZ Top 50, adding the US500 through SmartShares and much more recently adding an NZ Property Fund through Sharesies. By my own records, I’ve experienced returns of 12.5% and 18% for those first two funds after fees and taxes. It’s too soon to tell for the third fund.

My tolerance for risk is due to our current position and having educated myself. We still both work part-time and that pays the bills and allows us money to invest and to be honest having the price of the shares I buy drop in price is a good thing for me at this moment as I can buy more at a cheaper price. We worked hard to clear all of our debt and therefore, the money that we have invested is not currently needed, I’m not relying on it to keep the lights on and we are very much still in ‘growth phase’. One day when we flick the switch and start living off invested money then things will feel different but as we draw closer to that time, the way I invest will change.

We have been having a bull market, where the value of shares has marched upwards, with just a few downward blips. It’s been good times! And as you know good times won’t always last but I’m not going to waste my time, like over-reactive headline makers seem to be, freaking out and trying to predict when that change will come because NO ONE KNOWS when it will come. At some point there will be a recession, an economic crisis of some type, drops big and small. But after the rain comes the sunshine and each time there is a blip, like the other week or large like in 2008 things recover over time.

JL Collins of The Simple Path To Wealth fame says it will be a test for how I feel if the markets drop 5%, 20%, 50% or more but I think that if or when that day comes, I’ll just stop listening to any media, stop updating my spreadsheets and just spend a fair amount of time walking and running my dog. And I will keep buying these shares that are now on sale. Once enough time has passed, I’ll be really fit and so will Blue and THEN I’ll take a look at my numbers. And as the graphs on this blog post show, that period in time will just become another line on a graph.

“Ruth, I am gravely concerned about the value of our shares, but I think that all problems could be resolved with a good run,” said Blue

To quote JL Colins directly: “This is why you have to toughen up and learn to ignore the noise, stay the course and ride out the storm. Oh, and Buy!”