Low-interest rates are challenging. To meet this challenge it is important your investment strategy is match fit for today's environment and that you take a long-term approach. In our view, what we do as an active manager, seeking to beat the market, has become more important than ever.
Interest rates are falling and have been falling for many years and low rates present stern challenges. It makes it harder to save towards a retirement nest egg and harder to live off that nest egg in retirement.
Here we discuss low interest rates and the areas we believe we make a real difference.
Low interest rates are not a fleeting phenomenon. We all must adapt.
Growth and inflation determine the level of interest rates in an economy. We see three key factors which are likely to suppress both economic activity and prices in the years ahead, keeping interest rates low:
These secular trends suggest interest rates of the 80's and 90's are unlikely to return. Low interest rates create unique challenges for us all. We must embrace an investing mindset as savers are the losers in this environment.
Don't outlive your savings, make your money work harder for you.
Getting the right strategy is the first step in meeting the challenge of low interest rates. For many clients this may mean investing more of your portfolio in growth assets while still acknowledging that a well managed allocation to fixed income has an important role to play in protecting you in the tough times that will invariably come. You also need to make your money work harder. This means being dynamic in managing your wealth, adjusting your strategy as you reach long term objectives or changing spending or saving as circumstances change. Working closely with a financial adviser is more important than ever.
Stick to process and focus on the big picture.
Investing more in growth assets means your returns will be more variable week by week, month by month but, in the long term, your returns should be better. This variability in returns can be challenging – it's great when it's working for you but not so much fun when markets fall. This is where an investor's mindset can help. By investor's mindset we mean having clear expectations about how the returns on your investments might vary over time. Being well informed means you are well armed to avoid unpleasant surprises.
It is important to have a clear process for managing emotions through difficult market environments. Take A2 Milk as an example, the graph shows 4 occasions where the share price has fallen materially over the past 6 years. If you had panicked and sold you, would have missed out on a ~1,600% return.
$100,000 invested in our New Zealand Growth Fund in 1998 is worth over $1.2 million today.
Active management is at the heart of what Fisher Funds does as an investment manager. We seek to hand pick individual companies and fixed income investments that will do better than the market average. We have been successful in doing this for over 21 years, and, in our view, active management is going to be even more important over the next 21 years.
A low growth, low interest rate environment invariably means market returns will be lower than they have been. This makes any extra return we can generate through finding the best investment opportunities a bigger part of your overall return.
We have flexible investment options with varying degrees of risk to help you achieve financial freedom down the track.
KiwiSaver is a voluntary, work-based retirement scheme with the potential for added contributions from the Government and your employer.
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