Money Week 2018: Building financial resilience

Welcome to Sorted Money Week! This year’s theme is “Weather Life’s Storms”, which is all about building financial resilience and bouncing back when times get tough. In fitting with the theme, we thought we’d cover some handy tips on how to build resilience when it comes to 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 believes 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 automatic payment, 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 in funds, rather than individual companies. When you invest in a fund, you not only own a piece of lots of different companies, but you also spread your risk out more. For example, when you buy shares in the US 500 fund, you own a piece of 500 different companies—if one of those companies doesn’t do as well, you still have 499 other companies to balance it out!

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, reading up on the Sharesies blogs, 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.

For more info, check out Sorted Money Week: https://moneyweek.org.nz/ 

Ok, now for the legal bit

Investing involves risk. You aren’t guaranteed a return, and you might lose the money you started with. Before investing, you should read your fund’s product disclosure statement. It contains the investment objectives, risks, fees and other information. You should carefully consider this information in relation to your investment time frames and goals. 

Grow your investment portfolio, one payday at a time