by Nick Stewart (CEO and Financial Adviser at Stewart Group)
Even if you’ve been regularly contributing to your investments or KiwiSaver, you will likely have noticed a dip since 2022. Some may be thinking, “Why should I contribute if I’m going nowhere, or even backwards?”
A drop in price now doesn’t mean you have lost your hard-earned money forever, unless you withdraw from your investments and lock in the paper losses. The savvy thing to do during this time is carry on with your contributions, and take advantage of the cheaper prices. What goes up, must come down – and vice versa. Markets will return to the mean after periods of volatility, and you want to position yourself to capture the highs.
Instinctually, we want to only pick the best when it comes to investing. The famous stocks, the allegedly ‘guaranteed’ winners, or the hot new tech. When you chase these stocks, however, you end up doing two things: Firstly, you usually spend more buying them as they’re sought after. Secondly, you leave yourself vulnerable by disregarding diversification in favour of trending investments.
When Alice fell down the rabbit hole into Wonderland chasing the white rabbit, she found herself in a world she had very little control over. You’ll find choosing ‘hot’ stocks to be much the same.
Take Ryman for example. The retirement village behemoth saw huge growth in the past 10 years, partly due to widespread expansion in this sector to reflect the growing need for aged care. They took on debt to expand, too – and then, they began to stumble. In November 2022, Ryman reported a 31% drop in first-half profit as the value of its $8.74 billion property portfolio increased at a slower pace in a weaker housing market. They also just asked shareholders to stump up $902 million to repay debts raised on the United States Private Placement market (USPP). This aims to take their forecasted net debt from $3 million to around $2.25 million.[i]
This fundraising development has also earned them the attention of the regulator, as it revealed a potential breach of debt covenants that stockmarket regulator NZ RegCo will be looking into.[ii]
While this industry may have been an eye-catching, blindingly white rabbit in past, chasing it has led to an uncertain future for some investors. Rising building costs, covid constraints, and a shortage of care workers has made the current situation for many of these providers much less profitable (if profitable at all).
Another example (slightly infamous now) is A2 Milk. The company surged in popularity, price and profit in 2020, only to have an extremely volatile 2021. The share price went from $20 to $6.50, and the earnings were down by 80%. Many jumped to buy the shares as they soared – only to be disappointed when they crashed.[iii]
Going down the rabbit hole will keep you focused on few options. You’re always chasing after something fantastic, but rarely does this pay off in the long term. Research tells us that diversification is our friend when it comes to investment. This is because when the Rymans and A2 Milks of the world falter – when you follow a glimpse of the white rabbit and reach that cramped little room like Alice did – you don’t want to have everything invested in them.
So, if it feels like you’re going nowhere with your robust, diversified portfolio even though you’re regularly contributing... that’s the time to stay in your seat and enjoy the cheap prices. Portfolios should be built with a variety of asset classes to support long term goals and plans. They are rebalanced based on market targets or weighting changes. They should take into account various scenarios to ensure there is no need to panic and if someone is drawing down, spending is accounted for in the short term.
And if you’ve been chasing stock tips and letting your emotions lead your investment decisions, howver... it may be time to assess whether the riskiness of this approach will offer you long term success. Picking stocks is a lot like picking lotto numbers; when you’re right, it’s good. When you’re wrong, you’re losing money you won’t easily get back.
While it’s not possible to predict the future, you can plan to accommodate its ups and downs – and the sooner you get started, the better. If you’re after a second opinion or need some help demystifying your financial roadmap, getting in touch with a trusted fiduciary for a chat is always a good place to start.
Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 302.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
[i] https://www.interest.co.nz/business/119662/retirement-village-operator-ryman-says-it-has-higher-debt-it-comfortable-current
[ii] https://www.nbr.co.nz/law/regulator-assessing-ryman-disclosure-on-debt-covenants/
[iii] https://www.interest.co.nz/business/111948/a2-milk-company-remains-confident-underlying-fundamentals-its-business-after-seeing
