Higher returns don’t matter for the short term: They need time to work their magic. There’s more than one reason behind the old investment message that goes like this: If you need your money in just a few years invest your savings conservatively, but if you have a longer horizon take more risk.
How to cope with the topsy turvy share market. The value of worldwide shares in a certain industry grew more than 52 per cent in the year ending last October. Why didn’t we hear more about it? A clue might lie in the fact that the industry was information technology — infamous for its volatility.
Stop loss strategy can in fact stop you from winning. A paragraph in a recent article in some of the newspapers that run this column caught my eye. “If you feel a bit more daring, yet want to retain a backstop strategy,” it read, “buy shares and sell them if they drop below 5 per cent of the purchase price. Sell once they increase above 10 per cent of the purchase price.”
Foreign exchange — the risk that often isn’t risky. Investing in offshore shares is riskier than investing in New Zealand shares, because of the foreign exchange risk, right? Not necessarily. For many people saving for retirement, it’s actually riskier not to invest offshore.
New share fund doesn’t need the hype. Naughty, naughty, NZX Funds Management! As a subsidiary of the stock exchange, you must know that it’s misleading to quote 12-month returns when selling a share fund. That’s way to short a period to judge any share investment. It’s not surprising, though, that NZX chose to advertise in large letters that an index on which its new FONZ fund is based had a dividend yield of 6.4 per cent in the year ending September, plus share price growth of 18.4 per cent.
One-year wonder not so wonderful. The figures seem to argue against all the conventional wisdom on investing in shares or share funds. If you invest in New Zealand shares for just one year, you have a 30 per cent chance of getting a handsome return of more than 20 per cent. But if you invest for three years, the chance of getting such a high annual return falls to 11 per cent. Over five years, it’s a mere 2 per cent, and at ten years, it’s practically zero. Might as well go with just a one-year investment then, right? Wrong.