How to build financial resilience
We share our top four tips for building financial resilience, and weathering the ups and downs of investing.
We can’t stop life’s storms coming
No matter what, life will always have its ups and downs—and you can expect the same when it comes to investing, because share prices change constantly! It can be a bit of a roller coaster in the short term, but it’s all part of the deal of increasing your chance of higher returns over time.
Acknowledging that your investments will probably take a dip at one point or another is a great way to remind yourself that it’s normal for share prices to change! And while we may not be able to stop the inevitable from happening, we can be more prepared to deal with it when it comes.
Tip #1: Affordable amounts, for the long-term
At Sharesies, we’re firm believers in investing an affordable amount, regularly, over a long period of time. Investing for the long-term means you have more time to ride out the ups and downs of the share market, which helps reduce your risk and take advantage of the magic of compound growth. With a bit of patience and diversification, investments do tend to grow over time!
You don’t need heaps of money to get started, either. By investing as little as $5 each payday, you can start building a nice little nest egg for the future! Even if it’s just a small amount, having money set aside can help make sure you’re prepared for all the big milestones and unexpected events in life. It’s even easier to do if you set up an auto-invest order, because you can set and forget your deposits and let your investments do all the work for you!
Tip #2: Dollar-cost averaging to build nerves of steel
When you’re constantly watching the share prices change, it can be a little stressful trying to time your purchase to get a ‘good price’. An investment approach that can help combat this is dollar-cost averaging. Dollar-cost averaging is when you choose to invest a certain amount on a particular investment regularly, regardless of what the price is.
It can be a great way to manage the ups and downs of investing, because it averages out the amount you spend on shares over time, rather than trying to catch the market at a specific high or low point. Instead of panic-selling and making a loss when prices dip, you’ll be able to remind yourself to take a breath, hold on, and keep buying no matter what the price is. After all, a low price just means you’re getting a bargain … and prices have tended to go back up again eventually!
Tip #3: Don’t put all your eggs in one basket
While you can’t prevent a dip from happening, you can manage its impact by diversifying your investments. Diversification is when you spread your money across a bunch of different things, instead of having all your money riding on a single investment. For example, if you own a home, you could diversify your investments by also buying shares. This means that if anything were to happen to your property (like your house losing value), you’d still have some of your wealth invested in shares.
Another way you can diversify is by investing across different countries, sectors, or kinds of investments. For example, if you invested in the Smartshares US 500 fund and a few different NZ companies, you’d be diversified in two countries—so if something happened to the entire NZ economy, some of your money would be safe in the US fund, and vice versa.
Tip #4: Keep learning, keep doing
A big part of financial resilience is feeling confident in the decisions you make. But we also know that the less you know about something, the less chance there is of you feeling confident when you make a decision—especially when it comes to money! So where do you begin?
Whether it’s taking Sorted’s Investor Kickstarter quiz, or getting together with your mates to compare notes, we reckon sharing the knowledge and being more open about money is a really powerful place to start. And while it might sound scary, sometimes the best way to learn is to just learn by doing—after all, “resilience only comes from having been given the chance to work through difficult problems”!
Things aren’t always going to be perfect, and that’s okay. Sometimes you’ll find yourself at the bottom of the dip, and sometimes you’ll be at the top of the wave. No one can really predict when share prices are going to drop, so buckle in and prepare to ride the ups and downs over the long term! We can’t stop life’s storms coming, but we can try weather it by building financial resilience together.
Ok, now for the legal bit
Investing involves risk. You aren’t guaranteed to make money, and you might lose the money you start with. We don’t provide personalised advice or recommendations. Any information we provide is general only and current at the time written. You should consider seeking independent legal, financial, taxation or other advice when considering whether an investment is appropriate for your objectives, financial situation or needs.